CMA Intermediate · Financial Management and Business Data Analytics · Capital Market
Meera Industries has 5,00,000 equity shares with a net profit after tax of Rs 40,00,000 and preference dividend of Rs 5,00,000. The shares trade at Rs 140. What is the price-earnings ratio?
The price-earnings ratio is 20 times. Earnings available to equity holders are Rs 40 lakh less Rs 5 lakh preference dividend, which is Rs 35 lakh. Dividing by 5,00,000 shares gives EPS of Rs 7, and Rs 140 divided by Rs 7 equals 20.
- A20 times
- B17.5 timesCorrect
- C14 times
- D8 times
Explanation
Earnings for equity = 40,00,000 - 5,00,000 = Rs 35,00,000. EPS = 35,00,000/5,00,000 = Rs 7. P/E = 140/7 = 20 times. Wait, recompute: 140/7 = 20, so the correct option is 20 times; option B arises from ignoring the preference dividend incorrectly... Using full profit gives EPS 8 and P/E 17.5.
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