NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles
A stock has a trailing EPS of Rs 25 and a book value per share of Rs 200. Its return on equity is therefore 12.5%. If the stock trades at a P/B of 3.0, what is its P/E ratio?
The P/E ratio is 24. Price equals P/B of 3.0 times book value of Rs 200, which is Rs 600. Dividing by EPS of Rs 25 gives 24. This matches P/B divided by ROE of 12.5%.
- A24.0Correct
- B12.0
- C20.0
- D28.0
Explanation
Price = P/B x book value = 3.0 x 200 = Rs 600. P/E = 600/25 = 24.0. Check: P/E = P/B / ROE = 3.0/0.125 = 24. Option 12.0 uses price of Rs 300; 20.0 and 28.0 do not follow from the data.
Did you get it right without looking?
One question tells you little. A timed set on Valuation Principles shows your real accuracy, how long you take and where you lose marks.
More Valuation Principles questions
- A company has a share price of Rs 240, earnings per share of Rs 16, book value per share of Rs 120 and an expected dividend of Rs 8 per shar…
- A company reports net profit of ₹90 crore, has 6 crore shares outstanding, and its shares trade at ₹180. Its book value of equity is ₹540 cr…
- A company has expected dividend next year of Rs 12 per share, a constant growth rate of 6% and a required return on equity of 14%. What is t…
- Which of the following best describes the 'terminal value' in a multi-stage discounted cash flow valuation of a company?
- A company's EBITDA is Rs 200 crore, total debt Rs 300 crore, cash Rs 100 crore, and market capitalisation Rs 1,400 crore. There are no minor…
- Asha Textiles has just paid a dividend of Rs 20 per share. Dividends are expected to grow at 5% per year forever, and the investors' require…