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CMA Final · Strategic Financial Management · Fundamental Analysis and Technical Analysis

A company has net profit after tax of Rs 50 lakh, 10 lakh equity shares, and an industry average P/E of 12. What is the value per share by the P/E multiple method?

Earnings per share is Rs 50 lakh divided by 10 lakh shares, which is Rs 5. Multiplying by the industry P/E of 12 gives a value of Rs 60 per share. The other figures either ignore the multiple or mis-state the EPS.

  1. ARs 40
  2. BRs 50
  3. CRs 60Correct
  4. DRs 120

Explanation

EPS = 50,00,000/10,00,000 = Rs 5. Value = EPS x P/E = 5 x 12 = Rs 60. Rs 120 results from using 10 lakh... multiplying by 24 wrongly; Rs 50 ignores the P/E multiple.

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