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NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)

A company with 10 crore shares outstanding has a market price of Rs 150 and a book value of equity of Rs 600 crore. Net profit is Rs 75 crore. Which statement is correct?

P/E is 20 and P/B is 2.5. Market capitalisation is Rs 1,500 crore (10 crore shares at Rs 150). Dividing by net profit of Rs 75 crore gives 20, and dividing by book equity of Rs 600 crore gives 2.5.

  1. AP/E is 20 and P/B is 2.5Correct
  2. BP/E is 15 and P/B is 2.5
  3. CP/E is 20 and P/B is 4
  4. DP/E is 15 and P/B is 4

Explanation

Market cap = 10 crore x 150 = Rs 1,500 crore. P/E = 1,500/75 = 20. P/B = 1,500/600 = 2.5. Using book value per share of Rs 60 gives the same 150/60 = 2.5. Options with 15 or 4 come from using the wrong base or inverting values.

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