Ratios are mostly calculated using data drawn from the financial statements of a firm. However, another group of ratios, called market-based ratios, relate to a firm's observable market value, stock prices, and book values, integrating information from both the market and the firm's financial statements. Consider the case of Fuzzy Button Clothing Company: Fuzzy Button Clothing Company just reported earnings after tax (also called net income) of $9,000,000, and a current stock price of $12.00 per share. The company is forecasting an increase of 25% for its after-tax income next year, but it also expects it will have to issue 2,500,000 new shares of stock (raising its shares outstanding from 5,500,000 to 8,000,000). If Fuzzy Button's forecast turns out to be correct and its price-to-earnings (P/E) ratio does not change, what does the company's management expect its stock price to be one year from now? (Round any P/E ratio calculation to four decimal places). $10.32 per share $12.00 per share $7.74 per share $12.90 per share One year later, Fuzzy Button's shares are trading at $53.32 per share, and the company reports the value of its total common equity as $16,512,000. Given this information, Fuzzy Button's market-to-book (M/B) ratio is Is it possible for a company to exhibit a negative EPS and thus a negative P/E ratio? No Yes Which of the following statements is true about market value ratios? Low P/E ratios could mean that the company has a great deal of uncertainty in its future earnings. High P/E ratios could mean that the company has a great deal of uncertainty in its future earnings.