Skip to content

CA Intermediate · Financial Management and Strategic Management · Scope and Objectives of Financial Management

Aarav Textiles Ltd. has 10,00,000 equity shares outstanding. Its net profit after tax is ₹80,00,000 and it pays a dividend of ₹3 per share. The market price per share is ₹96. What is the firm's earnings per share and price-earnings ratio respectively?

EPS is ₹8 because net profit of ₹80 lakh is divided by 10 lakh shares, and the P/E ratio is 12 times because the ₹96 market price is divided by EPS of ₹8. Using dividend per share of ₹3 would wrongly give 32 times.

  1. AEPS ₹8; P/E 12 timesCorrect
  2. BEPS ₹8; P/E 32 times
  3. CEPS ₹5; P/E 19.2 times
  4. DEPS ₹3; P/E 32 times

Explanation

EPS = 80,00,000 / 10,00,000 = ₹8. P/E = 96 / 8 = 12 times. Using the dividend per share of ₹3 instead of EPS gives 32 times, which is the wrong base. Retained earnings per share is ₹5, which is not EPS.

Did you get it right without looking?

One question tells you little. A timed set on Scope and Objectives of Financial Management shows your real accuracy, how long you take and where you lose marks.

Practise Scope and Objectives of Financial ManagementFree diagnostic mock

More Scope and Objectives of Financial Management questions