1. How is return on equity computed? 2. If a company sells more shares of its stock, what is the impact on the return on equity? 3. Which ratio is considered a measure of investors' confidence in a company's future? Why?
1. Return on equity is computed as Net income/Average total stockholders' equity.
2. If a company sells more shares of stock, the denominator increases and return on equity goes down.
3. The price/earnings ratio is considered a measure of investors' confidence. This ratio measures how much investors are willing to pay for each dollar of earnings per share. When they are willing to pay a relatively high price, it means that they expect the company will continue to be successful in the future.
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Taylor Corporation sold Division M (a business component). It was determined that the pretax loss from the operations of Division M during the year totaled $50,000 and that a pretax gain of $125,000 was realized on the sale of the division. The tax rate is 35%. ? Required: ? In good form, prepare the appropriate section of the income statement.
What will be an ideal response?