ComprehensiveCase.docVIP

Comprehensive Case Applying Financial Statement Analysis EXERCISES Exercise CC-1 (30 minutes) The factors that would determine the relative PE ratios are: a. Growth in earnings per share Axel Bike Year 5 to 6 21% 20% Year 2 to 6 150% 54% Assuming net income is comparable as far as accounting practices go, Axel would be likely to have a higher PE ratio because of greater historic growth in earnings per share. b. Leverage in capital structure Axel Bike 33% of its total No debt capital is debt Axels earnings are likely to be greater, relative to Bike, because of t