Skip to content

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 for the year is ₹60,00,000 and the market price per share is ₹180. What is the Earnings Per Share (EPS) and the Price-Earnings multiple?

EPS is net profit divided by number of shares, which gives 60,00,000 divided by 4,00,000, or ₹15. The P/E multiple is market price divided by EPS, so 180 divided by 15 equals 12 times. Hence EPS ₹15 and P/E 12 times is correct.

  1. AEPS ₹15; P/E 12 timesCorrect
  2. BEPS ₹15; P/E 8.33 times
  3. CEPS ₹12; P/E 15 times
  4. DEPS ₹150; P/E 1.2 times

Explanation

EPS = 60,00,000 / 4,00,000 = ₹15. P/E = Market price / EPS = 180 / 15 = 12 times. Check: 12 x 15 = 180. The 8.33 option inverts the ratio (EPS/price is wrongly mixed with 15/180 style error), and the other options use wrong share counts or swap values.

Did you get it right without looking?

One question tells you little. A timed set on Scope and Objectives of Financial Management shows your real accuracy, how long you take and where you lose marks.

Practise Scope and Objectives of Financial ManagementFree diagnostic mock

More Scope and Objectives of Financial Management questions