Frantic Fast Foods Had Earnings After Taxes Of 420000 In 202

Frantic Fast Foods Had Earnings After Taxes Of 420000 In 2012 Wi

1). Frantic Fast Foods had earnings after taxes of $420,000 in 2012 with 309,000 shares outstanding. On January 1, 2013, the firm issued 20,000 new shares. Because of the proceeds from the new shares and other operating improvements, earnings after taxes increased by 30 percent.

a. Compute earnings per share for the year of 2012.

b. Compute earnings per share for the year 2013.

2). Prepare in good form an income statement for Virginia Slim Wear. Take your calculations all the way to computing earnings per share. Sales ......................$1,360,000 Shares outstanding............104,000 Cost of goods sold............700,000 Interest expense..............34,000 Selling and administrative expense...49,000 Depreciation expense.................23,000 Preffered stock dividends............86,000 Taxes...............................100,000

3). The Holtzman Corporation has assets of $400,000 current liabilities of $100,000. There is $40,000 in preferred stock outstanding; 20,000 shares of common stock have been issued.

a. Compute book value (net worth) per share.

b. If there is $22,000 in earnings available to common stockholders and Holtzman's stock has P/E of 18 times earning per share, what is the current price of stock?

Paper For Above instruction

Introduction

Financial analysis and valuation are fundamental aspects of corporate finance that provide insights into a company's profitability, efficiency, and market valuation. This paper addresses multiple financial computations based on given data, including earnings per share (EPS), income statement preparation, and stock valuation metrics, to demonstrate the application of core financial principles.

1. Earnings Per Share (EPS) Calculation for Frantic Fast Foods

For the year 2012, Frantic Fast Foods reported earnings after taxes of $420,000 with 309,000 shares outstanding. EPS is a critical metric that indicates the portion of a company's profit allocated to each share of common stock. It is calculated as net income divided by the number of outstanding shares.

EPS for 2012 = Earnings after taxes / Shares outstanding = $420,000 / 309,000 ≈ $1.36 per share.

In 2013, the company issued an additional 20,000 shares, increasing total shares to 309,000 + 20,000 = 329,000. Earnings after taxes increased by 30%, resulting in new earnings of $420,000 × 1.30 = $546,000.

EPS for 2013 = New earnings / Total shares = $546,000 / 329,000 ≈ $1.66 per share.

2. Income Statement Preparation for Virginia Slim Wear

The income statement summarizes revenues and expenses to calculate net income, which informs EPS. Given data includes sales, cost of goods sold, interest and administrative expenses, depreciation, and taxes, along with preferred dividends.

Sales: $1,360,000

Cost of goods sold: $700,000

Gross profit = Sales - COGS = $1,360,000 - $700,000 = $660,000

Operating expenses include selling, administrative, and depreciation expenses:

S&A expenses + Depreciation = $49,000 + $23,000 = $72,000

Operating income = Gross profit - Operating expenses = $660,000 - $72,000 = $588,000

Interest expense: $34,000

Pre-tax income = Operating income - Interest expense = $588,000 - $34,000 = $554,000

Taxes: $100,000

Net income = Pre-tax income - Taxes = $554,000 - $100,000 = $454,000

Subtract preferred dividends to find earnings available to common shareholders:

EPS = Earnings available to common / Shares outstanding = ($454,000 - $86,000) / 104,000 ≈ $3.77 per share.

3. Stock Valuation for Holtzman Corporation

Book value per share is calculated as:

Net worth = Total assets - Total liabilities = $400,000 - $100,000 = $300,000

Equity attributable to common shareholders = Net worth - Preferred stock = $300,000 - $40,000 = $260,000

Book value per share = Equity / Shares outstanding = $260,000 / 20,000 = $13 per share.

Given earnings available to common stockholders of $22,000, the earnings per share (EPS) are:

EPS = $22,000 / 20,000 = $1.10

Using the P/E ratio of 18, the current stock price is:

Price = P/E × EPS = 18 × $1.10 = $19.80 per share.

Conclusion

This analysis illustrates critical financial metrics that guide investment decisions, including EPS calculations based on net income, income statement formulation, and stock valuation methods. These tools are essential for assessing firm performance and market value, providing investors with insights into profitability and growth prospects.

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