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NISM Certifications · NISM-Series-XV: Research Analyst · Valuation Principles

A stock trades at a price of Rs 360 with book value per share of Rs 120 and ROE of 18%. What is its price to book value (P/B) ratio and the earnings per share implied?

The P/B ratio is 3.0 and implied EPS is Rs 21.6. Price of 360 divided by book value of 120 gives 3. Since ROE equals EPS over book value per share, EPS is 18% of 120, which equals 21.6.

  1. AP/B 3.0 and EPS Rs 21.6Correct
  2. BP/B 3.0 and EPS Rs 64.8
  3. CP/B 0.33 and EPS Rs 21.6
  4. DP/B 2.0 and EPS Rs 18

Explanation

P/B = 360/120 = 3.0. ROE = EPS/book value, so EPS = 0.18 x 120 = Rs 21.6. Rs 64.8 wrongly applies ROE to price; 0.33 inverts the ratio.

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