NISM Certifications · NISM-Series-XV: Research Analyst · Terminology in Equity and Debt Markets
A stock has a face value of Rs 10 and trades at Rs 450. The company's net profit after tax is Rs 60 crore and it has 4 crore shares outstanding. What is its price-to-earnings (P/E) ratio?
The P/E ratio is 30. Earnings per share equals Rs 60 crore divided by 4 crore shares, which is Rs 15, and dividing the market price of Rs 450 by this EPS gives 30 times.
- A30Correct
- B45
- C7.5
- D15
Explanation
EPS = 60 crore / 4 crore shares = Rs 15. P/E = market price / EPS = 450 / 15 = 30. Using the face value of Rs 10 would give 45 (wrong base). Dividing EPS by price gives the earnings yield, not the P/E.
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