CS Executive · Corporate Accounting and Financial Management · Security Analysis
A company's share has an expected EPS of Rs 20 and the industry average price-earnings ratio is 12. Using the P/E multiple approach, what is the estimated value per share?
The estimated value is Rs 240 per share, found by multiplying expected earnings per share of Rs 20 by the industry price-earnings ratio of 12. Dividing instead would wrongly invert the multiple.
- ARs 240Correct
- BRs 1.67
- CRs 32
- DRs 120
Explanation
Value = EPS x P/E = 20 x 12 = Rs 240. Dividing EPS by the P/E gives Rs 1.67, which inverts the relationship and is wrong.
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