CA Final · Financial Reporting · Analysis of Financial Statements
Narmada Steel Ltd has a year-end share price of Rs 150, profit after tax Rs 30,00,000, preference dividend Rs 2,00,000, and 4,00,000 equity shares outstanding throughout the year. Its price-earnings ratio is:
The price-earnings ratio is 21.43. Earnings available to equity shareholders are Rs 30,00,000 less preference dividend of Rs 2,00,000, i.e. Rs 28,00,000, giving EPS of Rs 7 on 4,00,000 shares. Dividing the Rs 150 price by Rs 7 gives 21.43.
- A21.43Correct
- B20.00
- C25.00
- D18.75
Explanation
Earnings for equity = 30,00,000 - 2,00,000 = 28,00,000. EPS = 28,00,000/4,00,000 = Rs 7. P/E = 150/7 = 21.43. Not deducting preference dividend gives EPS 7.5 and P/E 20, which is wrong.
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