Assume the following information about a publicly traded regional bank:
Revenue: $25,000,000 -
Cash flow: $6,500,000 -
Total Assets: $68,000,000 -
Total Liabilities: $53,000,000 -
Number of common shares outstanding: 2,000,000
Current stock price: $16.75 per share
Using this information, what are the price-to-sales, price-to-book, and price-to-cash flow ratios, respectively?
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A. B. C. D. E.B
To calculate the price-to-sales ratio, divide the market price of a common stock by its sales-per share figure. The equation for the price-to-sales ratio is as follows:
Price-to-sales ratio = [P0 / sales per share].
Incorporating the given information into this equation will yield the following: Price-to-sales ratio = [$16.75 / ($25,000,000 / 2,000,000)] = 1.34
The calculation of the price-to-book ratio involves dividing the market price of a common stock by its net worth per share. The equation for the price-to-book ratio is as follows:
Price-to-book ratio = [P0 / net worth per share].
Where: net worth per share = (total assets - total liabilities) / number of common shares outstanding.
In this example, the net-worth-per-share figure must be calculated manually. This process is illustrated as follows:
Net worth per-share = [($68,000,000 - $53,000,000) / 2,000,000} = 7.5
Now that the net-worth-per-share figure has been determined, the price-to-book ratio can be calculated. This process is shown below:
Price-to-book ratio = ($16.75 / $7.5) = 2.23
The calculation of the price-to-cash flow ratio involves dividing the market price of a common stock by the cash-flow-per-share figure. The calculation of the price- to-cash flow ratio is as follows:
Price-to-cash flow = (P0 / cash flow per share)
Incorporating the given information into this equation will yield the following: Price-to-cash flow = [$16.75 / ($6,500,000 / 2,000,000)] = 5.15385