Financial Statements Essay; Price Earning Ratio Custom Essay

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Financial Statements for Larkins Compnay appear below:
Larkins Company
Statement of financial Position
December 31, Year 2 and Year 1
(dollars in thousands)

Current assets: Year 2 Year 1
Cash and marketable securities $180 $180
Accounts receivable, net 210 180
Inventory 130 120
Prepaid expenses 50 50
Total current assets 570 530
Noncurrent assets:
Plant & equipment, net 1,540 1,480
Total Assets $2,110 $2,010

Current liabilities:
Accounts Payable $100 $130
Accrued liabilities 60 60
Notes payable, short term 90 120
Total current liabilities 250 310
Noncurrent liabilities:
Bonds payable 480 500
Total liabilities 730 810
Stockholder’s equity:
Preferred stock, $20 par, 10% 120 120
Common stock, $10 par 180 180
Additional paid-in-capital–common stock 240 240
Retained earning 840 660
Total stockholder’s equity 1,380 1,200
Total liabilities & stockholder’s equity $2,110 $2,010

Larkins Company
Income Statement
For the year ended December 31, Year 2
(dollars in thousands)
Sales (all on account) $2,760
Cost of goods sold 1,930
Gross margin 830
Selling and admin expenses 330
Net operating income 500
Interest expense 50
Net income before taxes 450
Income taxes (30%) 135
Net income $315

Dividends during Year 2 totaled $135 thousand, of which $12 thousand were preferred dividends. The market price of a share of common stock on December 31, Year 2 was $150.

Larkin’s Company’s price earnings ratio on December 31, Year 2 was closest to
A. 8.91
B. 20.79
C. 8.57
D. 6.00

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