Ordinary shares, RM20 par value (no change during the year)
RM5,000,000
Preferred 10% stock, RM40 par (no change during the
year)
2,000,000
The net income was RM600,000, and the declared dividends on the ordinary
shares were RM125,000 for the current year. The market price of the ordinary
shares is RM20 per share

a. earnings per share is RM1.60.

b. the price-earnings ratio is 12.50.

c. the dividends per share is RM0.50 and the dividend yield is 2.50%.

Explanation:

Note: This question is not complete. The complete question is therefore provided before answering the question as follows:

The following information was taken from the financial statement of Fine Resources for December 31 of the current year:

Ordinary shares, RM20 par value (no change during the year) was RM5,000,000

Preferred 10% stock, RM40 par (no change during the year) was RM2,000,000

The net income was RM600,000, and the declared dividends on the ordinary shares were RM125,000 for the current year.

The market price of the ordinary shares is RM20 per share.

Required:

Calculate for ordinary shares related to:

a. earnings per share

b. the price-earnings ratio

c. the dividends per share and the dividend yield

The explanation of the answer is now given as follows:

a. earnings per share

This can be calculated as follows:

Earnings per share = (Net income – Preferred dividend) / Number of ordinary shares …………… (1)

Where;

Net income = RM600,000

Preferred dividend = Preferred share value * 10% = RM2,000,000 * 10% = RM200,000

Number of ordinary shares = Total value of ordinary shares / Ordinary share per value = RM5,000,000 / RM20 = 250,000

Substituting the values into equation (1), we have:

Earnings per share = (RM600,000 – RM200,000) / 250,000 = – RM200,000 / 250,000 = RM1.60

b. the price-earnings ratio

This can be calculated as follows:

Price-earnings ratio = Market price per share / Earnings per share = RM20 / RM1.60 = 12.50

c. the dividends per share and the dividend yield

Dividends per share = Ordinary shares dividend declared / Number of ordinary shares = RM125,000 / 250,000 = RM0.50

Dividend yield = Market price per share / Dividends per share = RM0.50 / RM20 = 0.025, or 2.50%

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