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Unformatted text preview: ratio – less risk to them. Stockholders may want a higher debt ratio – more debt to gain more leverage. B. Times Interest Earned (TIE) = EBIT / Interest = 283.8 / 88 = 3.2 times IV. Profitability Ratios A. Profit Margin = NI / Sales = 117.5 / 3,000 = 3.9% B. Return on Total Assets = NI / TA = 117.5 / 2,000 = 5.9% C. Return on Common Equity (ROE) = NI / Common Equity = 117.5 / 940 = 12.5% V. Market Value Ratios A. Price Earnings Ratio (P/E) = price per share / earnings per share = 23.00 / 2.27 = 10.1 times P/E tends to be higher for firms with strong prospects for growth and lower for firms considered to be riskier to investors. B. Market to Book Ratio (M/B) = market price per share / book value per share = 23.00 / 18.80 = 1.2 times Book value per share = Common Equity / # shares o/s = 940 / 50 = 18.80 VI. Equity Multiplier = TA / Common Equity = 2,000 / 940 = 2.13 Higher the firm’s debt, the higher the equity multiplier....
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This note was uploaded on 03/24/2008 for the course BUS 320 taught by Professor Sloan during the Fall '08 term at N.C. State.
- Fall '08