Q21E
Question
Data for Oxford State Bank follow:
2018 | 2017 | |
Net Income | \(71,900 | \)64,300 |
Dividends—Common | 22,000 | 22,000 |
Dividends—Preferred | 16,800 | 16,800 |
Total Stockholders’ Equity at Year-End (includes 95,000 shares of common stock) | 770,000 | 610,000 |
Net Income | \( 71,900 | \) 64,300 |
Market Price per Share of Common Stock | \( 16.50 | \) 10.00 |
Evaluate the common stock of Oxford State Bank as an investment. Specifically,
use the three stock ratios to determine whether the common stock has increased or decreased in attractiveness during the past year. Round to two decimal places.
Step-by-Step Solution
VerifiedAnswer
The analysis of three stock ratio indicates that attractiveness of common stock of the company has increased because EPS increased from 0.50 to 0.58, Price earnings ratio increased from 20.00 to 28.45 from year 2017 to 2018.
Earnings Per Share = Net Income- Preferred Dividend/ Common Share Outstanding
For 2018
EPS = $71,900-16,800/95,000
= $0.58
For 2017
EPS= $64,300-16,800/95,000
=$0.50
Price-Earnings Ratio= Market Price per share of common stock/ EPS
For 2018
PER = $16.50/$0.58
=28.45
For 2017
PER= $10.00/0.50
=20.00
Dividend Yield Ratio = Annual Dividend per share/ Market price per share
For 2018
Annual dividend for share =Total Dividend Paid / Common Share Outstanding
= $22,000/95,000
=0.23
So, Dividend yield Ratio = $0.23/16.50
=1.40%
For 2017
Annual dividend for share = $22,000/95,000
=0.23
So, Dividend Yield Ratio= $0.23/10.00
=2.3%
Dividend Pay- out Ratio = Annual Dividend per share/ EPS
For 2018
Dividend Pay- out =$0.23/ 0.58
=39.65%
For 2017
Dividend pay- out = $0.23/0.50
=46%