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The managerial accountant at Managerial Funding Resources reported in 2014 its earnings per share were $6.20 and the market price per share of its common stock is $75. In 2013, the managerial accountant reported $3.10 earnings per share and the market price was $40 per share.
Compute the price/earnings ratio at Managerial Funding Resources and discuss why the managerial accountant is interested in the price/earnings ratio.
Return On Investment
A measure of the profitability and efficiency of an investment, calculated as net profit divided by the cost of the investment.
Invested Assets
Assets that have been purchased or acquired for the purpose of generating income or profit, not for immediate resale.
Minimum Return
The lowest acceptable rate of return on an investment that a manager or investor is willing to accept.
Residual Income
Residual income is the amount of net income generated in excess of the minimum rate of return. It's often used to assess the performance of business units.
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