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LOS d, (Part 1): Calculate underlying earnings given earnings per share (EPS) and nonrecurring items in the income statement. ffice ffice" />
Q1. Alpha Software (AS) recently reported a representative annual earnings per share (EPS) of $1.75, which included an extraordinary loss of $0.19 and an expense of $0.10 related to acquisition costs during the accounting period, neither of which are expected to recur. Given that the most recent share price is $65.00, what is a useful AS’s trailing price to earnings (P/E) for valuation purposes?
A) 37.14.
B) 31.86.
C) 44.52.
Correct answer is B)
Using an underlying earnings concept, an analyst would add back the temporary charges against earnings: $1.75 + $0.19 + $0.10 = $2.04. The resulting trailing P/E = 65.00 / 2.04 = 31.86.
Q2. Glad Tidings Gifts (GTG) recently reported a representative annual earnings per share (EPS) of $2.25, which included an extraordinary loss of $0.17 and an expense of $0.12 related to acquisition costs during the accounting period, neither of which are expected to recur. Given that the most recent share price is $50.00, what is a useful GTG’s trailing price to earnings (P/E) for valuation purposes?
A) 22.22.
B) 25.51.
C) 19.69.
Correct answer is C)
Using an underlying earnings concept, an analyst would add back the temporary charges against earnings: $2.25 + $0.17 + $0.12 = $2.54. The resulting trailing P/E = 50.00 / 2.54 = 19.69.
Q3. Underlying earnings may be defined as earnings:
A) that include non-recurring components.
B) that exclude non-recurring components.
C) net of capital expenditures needed to keep the business productive.
Correct answer is B)
Underlying earnings are earnings that exclude non-recurring items. They are also known as persistent, continuing, or core earnings.
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发表于 2009-3-9 16:50
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