CMA Final · Strategic Financial Management · Fundamental Analysis and Technical Analysis
Shares of Kaveri Plastics Ltd are quoted at Rs 480. The latest annual EPS is Rs 32. What is the price-earnings (P/E) multiple, and what does it imply about the earnings yield?
The P/E multiple is price divided by EPS, which is 480 / 32 = 15 times. The earnings yield is the inverse, EPS divided by price, giving 6.67%. The multiple and the yield are reciprocals, so a 15% yield would be incorrect.
- A15 times; earnings yield of 6.67%Correct
- B15 times; earnings yield of 15%
- C12 times; earnings yield of 8.33%
- D0.067 times; earnings yield of 15%
Explanation
P/E = 480 / 32 = 15 times. Earnings yield is the reciprocal: 32 / 480 = 6.67%. The option showing a 15% yield confuses the multiple with the yield percentage.
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