The Price / Earnings Ratio Essay

The Price / Earnings Ratio Essay

Length: 1205 words (3.4 double-spaced pages)

Rating: Better Essays

Open Document

Essay Preview

Market Value
Price/Earnings Ratio

Cracker Barrel has experienced a constant increase in its price/earnings ratio, with only one decrease in 2011, the only year to suffer a decrease in the company’s market price. This ratio indicates that investors were willing to pay an average of $14 for each $1 of earnings during the five year period. In 2013, the price/earnings ratio significantly increased as the market price at the year-end almost doubled. During the five year period, Cracker Barrel has been able to increase the confidence investors have in the company’s future performance.
However, Bob Evans considerably exceeds Cracker Barrel’s price/earnings ratio. Investors are willing to pay $35.89 for each $1 of earnings, which demonstrates that investors are more confident in investing their money in Bob Evans since they believe that Bob Evans has a greater probability of financial growth.
Market/Book Ratio

Over the five year period, Cracker Barrel’s market/book ratio has been somewhat instable, which reflects the fluctuation in the company’s market price at year end for this period. Overall, this ratio indicates that investors were willing to pay an average of $4.37 for each $1 of book value of Cracker Barrel’s stock over the last five years. Certainly, Cracker Barrel had a its best market/book ratio in 2010 as a result of a better balance between its total common equity, market price, and number of shares issued and outstanding in 2010. Even though in 2011 total common equity increased by 29%, the company’s market price decreased by 6.9% and its numbers of shares increased by only 0.45%, which resulted in the lowest market/book ratio for the five year period. In the following years, the company’s market/book ratio grew, reaching...

... middle of paper ...

...arrel’s ratio in 2014 was a low 17.13. Even though Cracker Barrel proved to be highly profitable, investors are more attracted to Bob Evans. Risks associated with Cracker Barrel’s indebtedness and slow inventory turnover may be the reason for the low level of confidence investors have in the company. However, Cracker Barrel’ share market price has been increasing because investors expect high returns relative to its risks.
Effectively, each year the company has been generating more sales by getting rid of some of its weaknesses, such as its debt, and taking advantage of its strengths. Cracker Barrel seems much focused on strategies that have proved to be generally successful. The company will more than likely continue to grow, just like Bob Evans, but unlike Bob Evans, Cracker Barrel will possibly directly compete with the industry magnates in the very near future.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay on The Ratio Of A Bank

- Here the selected firm is a bank and hence the conventional ratios may not hold the same significance as it does for the firms in other industries. For a bank the deposits is their liabilities and hence the loans which banks gives are their assets. Thus the bank balance sheet will consist of only the deposits and the loans. Hence the current ratio will not make the same sense as it does for other firms. The current ratio of the firm is 0.209. Since the bank does not have inventories and other short term assets, quick ratio cannot be calculated or is the same the current ratio since there are no inventories....   [tags: Financial ratios, Revenue, Financial ratio]

Better Essays
1688 words (4.8 pages)

Essay on Ratios Analysis : Ratio Analysis

- Ratio Analysis Over the three year period from 2011 to 2013 the current ratio has been below the industry average which means it has been less liquid than the industry average. The company is still able to pay its current debts, but the fact that it is lower than the standard may mean that they are borrowing too much, or are not effectively managing their resources. However, it may also mean that they have been borrowing to finance growth, which means that a lower current ratio is not necessarily bad for the company....   [tags: Financial ratios, Financial ratio, Asset]

Better Essays
855 words (2.4 pages)

Ratio And Financial Statement Analysis Essay

- RATIO AND FINANCIAL STATEMENT ANAYLSIS Ratio and Financial Statement Analysis can be seen as a means to an end i.e. Ratio analysis is a financial tool to derive a Financial Statement. Financial Analysis are accounting reports in respect of economic activities prepared periodically to measure the performance of the business. It could also be said to be the analysis established for evaluating the performance of companies. Such criteria are used as parameters in deciding whether the organisation is performing satisfactorily or not....   [tags: Financial ratio, Financial ratios, Balance sheet]

Better Essays
1068 words (3.1 pages)

Essay on Case Study : Lancaster Colony 's Current Ratio

- Lancaster Colony Cooperation manufactures diversified food products for the retail and food industry customers as Albertson 's, Ford Motor Company in the United States. The company consists of three largely autonomous divisions: Specialty Foods, Glassware & Candles, and Automotive Accessories. Financial Ratio Analysis: Lancaster Colony’s current ratio (4.60) means for every dollar of current liabilities, Lancaster has $4.60 of current assets. It demonstrates that Lancaster has the ability to pay out all current liabilities and still have enough assets left over to cooperate with....   [tags: Financial ratio, Balance sheet, Financial ratios]

Better Essays
1013 words (2.9 pages)

The Ratio Of A Company 's Short Term Ability On Pay Its Maturing Obligations

- “Liquidity ratios measure the enterprise’s short-term ability to pay its maturing obligations” (p. 243). The liquidity ratios include current ratio, quick or acid test ratio and current cash debt coverage ratio. Current ratio is one of the most fundamental liquidity ratio. It measures the potential of a business to reimburse current liabilities with current assets. According to calculation in part 4a the current ratio in 2013 is 1.2442 and in 2014 is 2.7491 which shows that current assets are more than current liabilities and the MLF will not face any liquidity problem....   [tags: Financial ratios, Financial ratio, Balance sheet]

Better Essays
1158 words (3.3 pages)

The On Common Equity Ratio Essay

- Since our investor requested that his chosen oil and gas stock meets his criteria from both a current and future perspective in term of performance, we have addressed this through our chosen ratios. The respective companies’ profitability has been measured through ratios including: ROCE, ROA and Operating Margins. Liquidity has been measured through the Quick Liquidity Ratio. We have viewed debt by examining: Debt to Equity, Debt to EBIDTA, and Interest Coverage Ratio. Finally, in terms of future performance, we felt it necessary to view R&D intensity and Reserves Replacement Ratio....   [tags: Investment, Asset, Financial ratio, Stock]

Better Essays
714 words (2 pages)

Financial Ratios And The Stock Price Essay

- Investors usually compare between the amount they have to spend and the expected return from their investment. If there is a significant benefit, they intend to invest more in a company. Consequently, they monitor the interested company’s performance regularly and do the comparison with others in the same industry. In Lewellen (2004) research, he said that financial ratios like earnings per share, price earnings and dividend ratios can be used for prediction return. As per the paper, if the share is overpriced, the ratios are low and therefore the estimated future return will be low....   [tags: Financial ratio, Stock, Stock market, P/E ratio]

Better Essays
1125 words (3.2 pages)

Essay The Debt Equity Ratio Of Gap

- Introduction Gap, operates as an apparel retail company worldwide. It offers apparel, accessories, and personal care products for men, women, and children. The company was founded in 1969 and is headquartered in San Francisco, California. In order to analyze its performance, the following financial ratios have been used and compared to the average of the industry and its main competitors (Ralph Lauren, H&M, Aeropostale and American Eagles Outfitters). Leverage After calculating the debt-equity ratio of GAP, we realize that her amount of financial leverage has increased considerably during the year of 2011....   [tags: Financial ratios, Revenue, Derivative]

Better Essays
703 words (2 pages)

ratio analysis Essay

- Financial Ratios: What They MeanIn assessing the significance of various financial data, managers often engage in ratio analysis, the process of determining and evaluating financial ratios. A financial ratio is a relationship that indicates something about a company's activities, such as the ratio between the company's current assets and current liabilities or between its accounts receivable and its annual sales. The basic source for these ratios is the company's financial statements that contain figures on assets, liabilities, profits, and losses....   [tags: essays research papers]

Better Essays
934 words (2.7 pages)

Financial Ratio Analysis Essay

- Before beginning an analysis of a company it is necessary to have a complete set of financial statements, preferably for the pas few years so that historical trends can be obtained. Ratios are a way for anyone to get an idea of the financial performance of a company by using the information contained in the financial statements. Ratios are grouped into four basic categories, liquidity, activity, profitability, and financial leverage. This document will use a variety of these ratios to analyze the firm, Sample Company, as of December 31,2000....   [tags: Business Finance]

Better Essays
1415 words (4 pages)