NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A company's equity shares trade at Rs 600. Its earnings per share for the latest year are Rs 40. What is its trailing price-to-earnings multiple?
The trailing P/E is 15, obtained by dividing the market price of Rs 600 by the latest EPS of Rs 40. Inverting the ratio would give the earnings yield, not the multiple, so the other figures are incorrect.
- A12
- B15Correct
- C24
- D6.7
Explanation
Trailing P/E = market price / EPS = 600 / 40 = 15. Check: 15 x 40 = 600. The value 6.7 results from inverting the ratio (EPS/price x 100 is the earnings yield, not P/E).
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