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

Zenith Ltd has equity share capital of ₹10,00,000 (face value ₹10 per share), 10% preference share capital of ₹5,00,000 and profit after tax of ₹4,50,000. Equity dividend paid is ₹2,00,000 and the market price per share is ₹36. What is the price-earnings ratio?

The price-earnings ratio is 9 times. Earnings available to equity holders are ₹4,50,000 less preference dividend of ₹50,000, which is ₹4,00,000. With 1,00,000 shares, EPS is ₹4, and dividing the market price of ₹36 by ₹4 gives 9 times.

  1. A12 timesCorrect
  2. B8 times
  3. C9 times
  4. D10 times

Explanation

Preference dividend = 10% × 5,00,000 = 50,000. Earnings for equity = 4,50,000 − 50,000 = 4,00,000. Shares = 1,00,000, so EPS = ₹4. P/E = 36/4 = 9 times. Check: this gives 9, so the correct option is 9 times, not the first listed.

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