Jacko Industries: Average Return on Equity Method and P/E Ratio

Average Return on Equity Method for Calculating P/E Ratio

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Question

The following information is provided about Jacko Industries.

Using the method of average return on equity, Jacko's P/E ratio is closest to:

Answers

Explanations

Click on the arrows to vote for the correct answer

A. B. C.

Explanation

To calculate Jacko Industries' P/E ratio using the method of average return on equity, we need to follow these steps:

  1. Determine the average return on equity (ROE) for Jacko Industries. ROE is calculated by dividing the net income by the average shareholders' equity. The formula for ROE is:

    ROE = Net Income / Average Shareholders' Equity

  2. Calculate the average shareholders' equity. This can be done by adding the beginning shareholders' equity and ending shareholders' equity and dividing the sum by 2. The formula for average shareholders' equity is:

    Average Shareholders' Equity = (Beginning Shareholders' Equity + Ending Shareholders' Equity) / 2

  3. Calculate the earnings per share (EPS) for Jacko Industries. EPS is calculated by dividing the net income by the number of common shares outstanding. The formula for EPS is:

    EPS = Net Income / Number of Common Shares Outstanding

  4. Finally, calculate the P/E ratio by dividing the market price per share by the EPS. The formula for P/E ratio is:

    P/E Ratio = Market Price per Share / EPS

Given that the average ROE and P/E ratio are related, we can use the average ROE to estimate the P/E ratio.

Now, let's work through the options provided:

A. 10.0: This means the P/E ratio would be 10.0.

B. 16.67: This means the P/E ratio would be 16.67.

C. 20.0: This means the P/E ratio would be 20.0.

Since we don't have the specific values for net income, shareholders' equity, and the number of common shares outstanding for Jacko Industries, we cannot calculate the exact P/E ratio or average ROE. To determine which option is closest to the P/E ratio, we need more information or calculations based on the specific financial data provided for Jacko Industries.

It's important to note that without specific financial data, it is not possible to determine the exact P/E ratio or provide a more accurate answer. Therefore, we cannot determine which option is closest to Jacko Industries' P/E ratio without additional information.

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