Question

Data for Oxford State Bank follow:

	2018	2017
Net Income	\(71,900	\)64,300
Dividends—Common	22,000	22,000
Dividends—Preferred	16,800	16,800
Total Stockholders’ Equity at Year-End (includes 95,000 shares of common stock)	770,000	610,000
Net Income	\( 71,900	\) 64,300
Market Price per Share of Common Stock	\( 16.50	\) 10.00

Evaluate the common stock of Oxford State Bank as an investment. Specifically,

use the three stock ratios to determine whether the common stock has increased or decreased in attractiveness during the past year. Round to two decimal places.

Short answer

Answer

The analysis of three stock ratio indicates that attractiveness of common stock of the company has increased because EPS increased from 0.50 to 0.58, Price earnings ratio increased from 20.00 to 28.45 from year 2017 to 2018.

Step-by-step solution

Calculation of EPS & PER

Earnings Per Share = Net Income- Preferred Dividend/ Common Share Outstanding

For 2018

EPS = $71,900-16,800/95,000

= $0.58

For 2017

EPS= $64,300-16,800/95,000

=$0.50

Price-Earnings Ratio= Market Price per share of common stock/ EPS

For 2018

PER = $16.50/$0.58

=28.45

For 2017

PER= $10.00/0.50

=20.00

Calculate Dividend Yield Ratio

Dividend Yield Ratio = Annual Dividend per share/ Market price per share

For 2018

Annual dividend for share =Total Dividend Paid / Common Share Outstanding

= $22,000/95,000

=0.23

So, Dividend yield Ratio = $0.23/16.50

=1.40%

For 2017

Annual dividend for share = $22,000/95,000

=0.23

So, Dividend Yield Ratio= $0.23/10.00

=2.3%

Calculate dividend payout ratio

Dividend Pay- out Ratio = Annual Dividend per share/ EPS

For 2018

Dividend Pay- out =$0.23/ 0.58

=39.65%

For 2017

Dividend pay- out = $0.23/0.50

=46%