If Green Caterpillar’s forecast turns out to be correct and its price/earnings (P/E) ratio does not change, the company’s management expect its stock price to be one year from now will be $9.71
The computation of stock price is shown below:-
Current EPS = Net Income ÷ Number of Common Shares Outstanding
Current EPS = $9,250,000 ÷ 5,500,000 = $1.68
Current P/E ratio = Current stock price ÷ Current EPS
Current P/E ratio = $12 ÷ $1.68 = 7.14
Next year's EPS = $9,250,000 × 1.25 ÷ 8,500,000 = $1.36
Next year's stock price = $ 1.36 x 7.14 = $9.71
Net income refers to the income of an individual or business after deducting expenses, allowances and taxes. In commerce, net income is what is left in the business after all expenses such as salaries and wages, cost of goods and raw materials, and taxes.
Is Net income the Same as Profit?
Profit simply means the remaining income minus expenses. It exists at multiple levels, depending on the type of cost that is deducted from the revenue. Net income, also known as net profit, is a single number that represents a particular type of profit. Net income is the famous last line of financial statements.
Is the net income before tax or after tax?
Gross and net are two important terms in the financial industry that refer to before and after paying a particular expense. In general, the “difference” refers to the amount after deducting expenses. Therefore, net income after tax is simply the amount remaining after deducting taxes.
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