NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A firm has a net profit of Rs 50 crore, 10 crore shares outstanding, and a retention ratio of 40%. Its share trades at Rs 75. What are its EPS and its dividend payout ratio respectively?
EPS is Rs 5 (Rs 50 crore divided by 10 crore shares) and the dividend payout ratio is 60%, because payout equals one minus the 40% retention ratio. The market price does not affect either figure.
- ARs 5 and 40%
- BRs 5 and 60%Correct
- CRs 7.5 and 60%
- DRs 3 and 40%
Explanation
EPS = 50/10 = Rs 5. Payout = 1 − retention = 1 − 0.40 = 60%, so dividend is Rs 3 per share. Reporting 40% confuses payout with retention. The share price is not needed for these two figures.
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