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CA Intermediate · Financial Management and Strategic Management · Financial Analysis and Planning - Ratio Analysis

Ravi Ltd. has 12,000 equity shares, net profit after tax ₹1,80,000, preference dividend of ₹30,000 and an equity dividend payout of ₹90,000. Its market price per share is ₹150. What is the price-earnings (P/E) ratio?

The P/E ratio is 12 times. Earnings available to equity shareholders are ₹1,50,000 after deducting the ₹30,000 preference dividend, so EPS is ₹12.50 on 12,000 shares. Dividing the ₹150 market price by ₹12.50 gives 12 times.

  1. A10 times
  2. B12 timesCorrect
  3. C15 times
  4. D20 times

Explanation

Earnings for equity = 1,80,000 − 30,000 = ₹1,50,000. EPS = 1,50,000/12,000 = ₹12.50. P/E = 150/12.50 = 12 times. Ignoring preference dividend gives EPS ₹15 and P/E of 10 times, which is wrong.

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