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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
- Earning Per Share
- Price Earning Ratio
Numerical
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Solution
| 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
shaalaa.com
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