Chapter 9 Solutions - Chapter 9 For the Investor TO THE NET...

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Chapter 9 For the Investor TO THE NET 1. a. 200 6 200 5 200 4 Earnings per common Basic income (loss) per share: Continuing operations $ 1.65 $ 0.74 $ 0.30 Discontinued operations (.03 ) (.03 ) .12 Disposal of discontinued operations (.10 ) .33 .01 Net income $ 1.52 $ 1.04 $ .43 Diluted income (loss) per share: Continuing operations $ 1.48 $ .69 $ .31 Discontinued operations (.03 ) (.02 ) .11 Disposal of discontinued operations (.08 ) .29 .01 Net income $ 1.37 $ .96 $ .43 b. Price / Earnings Ratio Market Price Per Share Diluted Earnings Per Share Before Nonrecurring Items 2006 2005 2004 $39.09 = 26.41 $24.43 = 35.41 $23.20 = 74.84 1.48 .69 .31 c. Percentage of Earnings Retained Net Income Before Nonrecurring Items – All Dividends Net Income Before Nonrecurring Items 2006 $71,563 - $8,736 = $62,827 = 87.79% $71,563 $71,563 2005 $33,568 - $9,116 = $24,452 = 72.84% $33,568 $33,568 8
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2004 $10,700 - $7,292 = $3,408 = 31.85% $10,700 $10,700 9
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d. Dividend Payout Dividends Per Common Share Diluted Earnings Per Share Before Nonrecurring items 2006 2005 2004 $.20 $.20 $.20 $1.48 $.69 $.31 13.51% 28.99 % 64.52 % e. Dividend Yield Dividends per Common Share Market price per Common Share 2006 2005 2004 $.20 $.20 $.20 $39.09 $24. 43 $23. 20 .51% .82% .86% 2. Motorola 2006 2005 2004 Other charges (income) $ 2 $ (404,000,000) $ 149,000,000 Gains on sales of investments and businesses, net $ 4 $ 1,845,000,000 $ 460,000,000 3. Boeing 2006 2005 2004 a. Diluted earnings per common share $ $3.19 $2.24 b. Price/earnings ratio $ = 31.2 8 $70.24 = 22.02 $51.90 = 23.17 $ $3.19 $2.24 10
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c. Percentage of earnings retained Net Income Before Nonrecurring Items – All Dividends Net Income Before Nonrecurring Items 2006 2005 2004 $2,206 – $956 $2,562 – $820 $1,820 – $648 $2,206 $2,562 $1,820 $1,250 $1,74 2 $1,17 2 $2,206 $2,56 2 $1,82 0 56.66% 67.99 % 64.40 % d. Dividend Payout Dividends Per Common Share Diluted Earnings Per Share Before Nonrecurring Items 2006 200 5 200 4 $1.25 $1. 05 $.8 5 $2.84 $3. 19 $2. 24 $.44 $.3 3 $.3 8 e. Dividend Yield Dividends Per Common Share Market Price Per Common Share 2006 2005 2004 $1.25 $1.0 5 $.85 $88.84 $70. 24 $51. 90 1.41% 1.49 1.64 11
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% % 12
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4. 2006 2005 a. Total assets $215,666,000 $172,759,000 b. Shareholders’ equity $161,145,000 $81,012,000 c. Common stock shares issued and outstanding 15,734,000 12,789,000 d. Total capitalization Shares issued and outstanding (a) 15,734,000 12,789,000 Market price (b) $31.59 $16.95 (a) x (b) = $49,703,706 $21,677,355 e. Total shareholders’ equity represents the book amount. Capitalization is equal to shares issued and outstanding multiplied by the market price per share. 13
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QUESTIONS 9- 1. Earnings per share is the amount of income earned on a share of common stock during an accounting period. 9- 2. The Financial Accounting Standards Board suspended the reporting of earnings per share for nonpublic companies. 9- 3. Keller & Fink is a partnership. Earnings per share is a concept that only applies to corporate income statements. 9- 4. Earnings per share is a concept that only applies to common stock. The earnings per common share computation only uses earnings available to common stockholders. To arrive at the income that applies to common stock, preferred dividends are subtracted from net income in the numerator of the ratio. 9- 5. Since earnings pertain to an entire year, they should be related to the common shares outstanding during the year. The year-end common shares outstanding may not be representative of the shares outstanding during the year.
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