ACCA Applied Knowledge · Financial Accounting · Ratios
Dunmore Co has 5,000,000 ordinary shares in issue. Profit after tax is $2,000,000 and the P/E ratio is 15. What is the market capitalisation of Dunmore?
Market capitalisation is $30,000,000. EPS is $0.40, so the share price is 15 times that, $6, and multiplying by 5,000,000 shares gives $30 million. Equivalently, P/E of 15 times total earnings of $2 million gives the same figure.
- A$30,000,000Correct
- B$6,000,000
- C$75,000,000
- D$133,333
Explanation
Market capitalisation = P/E x total earnings = 15 x 2,000,000 = $30,000,000. Check: EPS = $0.40, price = 15 x 0.40 = $6, and 6 x 5,000,000 = $30,000,000. The $6,000,000 option is the share price multiplied incorrectly.
Did you get it right without looking?
One question tells you little. A timed set on Ratios shows your real accuracy, how long you take and where you lose marks.
More Ratios questions
- Extracts from a company's statement of financial position: ordinary shares $400,000; retained earnings $300,000; 5% redeemable preference sh…
- Entity X's profit from operations was $180,000 and capital employed (equity plus non-current liabilities) was $900,000 at the year end. Late…
- Kobe Co reported profit after tax of $900,000 and paid ordinary dividends of $300,000. Which of the following is the dividend cover?
- Orwell Co has revenue of $2,400,000, and non-current assets of $800,000 at the year end. Net current assets are $400,000. Non-current assets…
- Marlow Co had cost of sales of $730,000 for the year. Opening trade payables were $60,000 and closing trade payables were $100,000. Purchase…
- Which of the following is a recognised limitation of using ratio analysis to assess the performance of a single company?