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CA Intermediate · Financial Management and Strategic Management · Scope and Objectives of Financial Management

Sharma Textiles Ltd. has 4,00,000 equity shares outstanding. Its net profit after tax is ₹60,00,000 and its shares trade at ₹150 each. The finance team wants to track the wealth of shareholders in terms of market capitalisation. What is the company's current market capitalisation, and what is its EPS?

Market capitalisation is shares multiplied by price: 4,00,000 × ₹150 = ₹6 crore. EPS is profit after tax divided by shares: ₹60,00,000 / 4,00,000 = ₹15. Both figures reconcile with an implied price-earnings multiple of 10.

  1. AMarket capitalisation ₹6,00,00,000; EPS ₹15Correct
  2. BMarket capitalisation ₹6,00,00,000; EPS ₹150
  3. CMarket capitalisation ₹60,00,000; EPS ₹15
  4. DMarket capitalisation ₹9,00,00,000; EPS ₹15

Explanation

Market capitalisation = 4,00,000 × ₹150 = ₹6,00,00,000. EPS = ₹60,00,000 / 4,00,000 = ₹15. Check: ₹150 / ₹15 gives a P/E of 10, and ₹15 × 10 × 4,00,000 = ₹6 crore. The option showing ₹9 crore wrongly uses a different multiple, and the ₹60 lakh option confuses profit with market value.

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