IAI Actuarial Core Principles · Business Finance · Interpreting company accounting information
A company's share price rises while its earnings per share stay constant. What happens to its price-earnings ratio and earnings yield?
The price-earnings ratio rises and the earnings yield falls. P/E is price divided by EPS, while earnings yield is its reciprocal, so with EPS constant a higher share price increases the first and reduces the second.
- AP/E rises and earnings yield fallsCorrect
- BP/E falls and earnings yield rises
- CBoth rise
- DBoth fall
- Both remain unchanged
Explanation
P/E = price/EPS, so a higher price with constant EPS raises it. Earnings yield = EPS/price, the reciprocal, so it falls.
Did you get it right without looking?
One question tells you little. A timed set on Interpreting company accounting information shows your real accuracy, how long you take and where you lose marks.
More Interpreting company accounting information questions
- A company's gross profit margin has remained stable, but its net profit margin has fallen sharply over two years. Which is the most likely e…
- A company's plant had a book value of Rs 50 lakh and was sold at a loss of Rs 8 lakh. In the indirect-method cash flow statement, how should…
- Which of the following is the most appropriate use of the current ratio and the quick (acid test) ratio when assessing short-term solvency?
- Mehta Foods Ltd had opening retained earnings of Rs 120 lakh and closing Rs 150 lakh. Profit after tax was Rs 55 lakh. Share capital and bor…
- Two companies in the same industry report identical profit after tax. Company X has leased most of its plant under arrangements treated as o…
- Gomti Engineering has profit after tax of Rs 36 crore, revenue of Rs 600 crore, total assets of Rs 400 crore and shareholders' equity of Rs …