NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A company has a trailing EPS of Rs 40 and its shares trade at Rs 600. What is its trailing price-to-earnings (P/E) multiple?
The trailing P/E is 15 times, because the P/E ratio equals market price divided by earnings per share. Dividing Rs 600 by Rs 40 gives 15, meaning investors pay Rs 15 for every rupee of annual earnings.
- A12 times
- B15 timesCorrect
- C20 times
- D24 times
Explanation
P/E = Price / EPS = 600 / 40 = 15 times. Check: 15 x 40 = 600. A multiple of 12 would come from dividing by Rs 50, and 24 would come from wrongly using Rs 25.
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