NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
A company's shares are trading at ₹240 and its earnings per share (EPS) for the last year was ₹15. What is its price-to-earnings (P/E) ratio?
The P/E ratio is 16. It is calculated by dividing the market price of ₹240 by the earnings per share of ₹15. This shows investors pay ₹16 for every rupee of annual earnings, and checking 16 multiplied by 15 returns ₹240.
- A16Correct
- B15
- C3.6
- D225
Explanation
P/E = market price divided by EPS = 240 / 15 = 16. Check: 16 x 15 = 240. The value 15 is just the EPS figure, 3.6 comes from multiplying instead of dividing and scaling, and 225 subtracts EPS from price, which is meaningless.
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