NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
A stock trades at Rs 600 and its earnings per share for the last twelve months are Rs 30. What is its trailing price-to-earnings (P/E) ratio?
The trailing P/E ratio is 20 times, because the price-to-earnings ratio is the market price divided by earnings per share. Dividing Rs 600 by Rs 30 gives 20, meaning investors pay Rs 20 for every Re 1 of annual earnings.
- A10 times
- B20 timesCorrect
- C18 times
- D5 times
Explanation
P/E = Market price / EPS = 600 / 30 = 20 times. Check: 20 x 30 = 600. The 10 times figure would result from using EPS of Rs 60, and 5 times from inverting wrongly and mis-scaling; 18 is not derived from the data.
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