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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

A company's share has a face value of Rs 10 and trades at Rs 1,200. It announces a stock split into shares of Rs 2 face value. Its trailing EPS was Rs 60 before the split. After the split, what are the adjusted EPS and the P/E ratio, other things unchanged?

Adjusted EPS becomes Rs 12 and P/E remains 20. The split creates five shares for each old one, so both price (Rs 240) and EPS fall to one-fifth, leaving the price-earnings multiple unchanged.

  1. AEPS Rs 12; P/E 20Correct
  2. BEPS Rs 60; P/E 4
  3. CEPS Rs 12; P/E 100
  4. DEPS Rs 300; P/E 20

Explanation

Split ratio = 10/2 = 5 shares for each old share. Adjusted price = 1,200/5 = Rs 240 and EPS = 60/5 = Rs 12. P/E = 240/12 = 20, same as 1,200/60 = 20. A split does not change P/E.

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