NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
A company's shares trade at a market price of Rs 480 and its earnings per share for the last year were Rs 24. What is its price-to-earnings (P/E) ratio?
The P/E ratio is 20 times, found by dividing the market price of Rs 480 by earnings per share of Rs 24. It shows how many rupees investors pay for each rupee of annual earnings. The inverse, 5%, is the earnings yield.
- A10 times
- B20 timesCorrect
- C24 times
- D5 times
Explanation
P/E = Market price / EPS = 480 / 24 = 20 times. Check: 20 x 24 = 480. The figure of 10 would come from using a wrong EPS of Rs 48, and 5% is the earnings yield (24/480), not the P/E.
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