Question

X Ltd. submits following information:

	₹
8% Preference Share Capital	5,00,000
Equity Share Capital (2,50,000 shares of ₹ 10 each)	25,00,000
Profit before tax	14,00,000
Tax rate	40%
Market Price of Equity Share	40

Compute

1. Earning Per Share
2. Price Earning Ratio

Answer 1

Particulars	₹
Profit before tax	14,00,000
Less: Tax @ 40%	5,60,000
Profit after tax	8,40,000
Less: Preference Dividend (@ 10% on 5,00,000)	40,000
Net Profit after tax and Preference Dividend	8,00,000

Earning Per Share (E.P.S.) = `"Net Profit after Tax and Preference Dividend"/"Number of Equity Shares"`

= `(₹ 8,00,000)/(₹ 2,50,000)`

= ₹ 3.20 per share

Price Earning Ratio = `"Market Price of the Equity Share"/"Earning Per Share"`

= `40/3.20`

= 12.5 Times