PA11-5 Computing and Interpreting Return on Equity (ROE) and Price/Earnings (P/E) Ratios [LO 11-5]

Two magazine companies reported the following in their 2012 financial statements:

	BusinessWorld							Fun and Games
	2012			2011				2012			2011
Net income	$	108,500		$	108,304			$	89,920		$	171,873
Total stockholders' equity		572,186			497,814				432,151			452,049
Earnings per share		2.90			2.89				1.80			3.68
Stock price when annual results reported		53.65			50.29				31.80			58.95

Required:
1-a.	Compute the 2012 ROE for each company. (Round your answers to 1 decimal place.)

1-b.

Which company appears to generate greater returns on stockholders equity in 2012?

	BusinessWorld
	Fun and Games
	Both Companies appear to generate the same return on equity

2-a.	Compute the 2012 P/E ratio for each company. (Round your answers to 1 decimal place.)

2-b.

Which company do investors appear to value more?

	BusinessWorld
	Fun and Games
	Both Companies appear to generate the same return on equity