Certain Information from the Financial Records of Companies Z and a Are

question 52

Essay

Certain information from the financial records of Companies Z and A are presented below for the year ended December 31. The two companies are in the same industry. Included in the shareholders' equity of Company Z is $ 75,000 of cumulative preferred shares with a 5% annual dividend entitlement ($ 3,750 per year).
Instructions
a) Calculate the following for each company:
(i) Profit margin
(ii) Return on equity to common shareholders
b) Calculate the following for each company:
(i) Earnings per share
(ii) Price-earnings ratio
c) Based on the ratios calculated in part
c), which company's investors appear to be more optimistic about the future of the company? Explain your answer by reference to the ratios calculated.

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Definitions:

Conditioned Response

A learned reaction to a previously neutral stimulus that has become associated with an unconditioned stimulus.

Potato Salad

A dish typically made from boiled potatoes and a variety of other ingredients, including mayonnaise, herbs, vegetables, and sometimes meat.

Stomach

An organ in the digestive system that secretes acid and enzymes to digest food before it moves into the small intestine.

Conditioned Stimulus

A formerly neutral signal that, once linked with an unconditioned stimulus, ultimately leads to eliciting a conditioned response.