Pacific Gas and Electric Company is a large gas and electric utility operating in northern and central California. Three recent years of financial data for Pacific Gas

Pacific Gas and Electric Company is a large gas and electric utility operating in northern and central California. Three recent years of financial data for Pacific Gas and Electric Company are as follows:









Fiscal Years Ended
(in millions)
Year 3 Year 2 Year 1
Net income $1,105 $1,208 $1,312
Preferred dividends $14 $14 $14
Average number of common shares outstanding 382 368 357



a. Determine the earnings per share for fiscal Year 3, Year 2, and Year 1. Round to the nearest cent.

b. Evaluate the growth in earnings per share for the three years in comparison to the growth in net income for the three years.


Answer:























a. Earnings per Share = Net Income – Preferred Dividends
Avg. Number of Common Shares Outstanding
Year 3 Earnings per Share = $1,105 – $14
382 shares
= $2.86 per share
Year 2 Earnings per Share = $1,208 – $14
368 shares
= $3.24 per share
Year 1 Earnings per Share = $1,312 – $14
357 shares
= $3.64 per share
b. Year 3 Year 2 Year 1
Earnings per share………………………………………… $2.86 $3.24 $3.64
Growth as a percent of Year 1 (base year)……………… 79% 89% 100%
Net income…………………………………………………… $1,105 $1,208 $1,312
Growth as a percent of Year 1 (base year)……………… 84% 92% 100%

Net income has declined over the three-year period. Year 2 net income declined 8% (100% – 92%) of Year 1, while Year 3 earnings declined 16% (100% – 84%) of Year 1. The decline in earnings per share is slightly more than the decline in earnings. Year 2 earnings per share declined 11% (100% – 89%) of Year 1, while Year 3 earnings per share declined 21% (100% – 79%) of Year 1