a. Following information is available in respect of a company named, as Beta Ltd
Amount
Rs 50 lakhs
R$2
Particulars
Profit before taxes
Dividend declared per share
Price of the share prevalent on stock
exchange
Applicable tax rate
Share capital of company 5 lakh shares
of Rs 10 each
Rs 200
Calculare-
Earnings per share
Dividend Pay-out Ratio
Price earnings ratio
•
Answers
Earning per share = $6.5
Dividend pay out ratio = 30.77%
Price earning ratio = 30.77
Explanation:
The following are the formulas and calculations:
1. For Earning per share
= (Net income after tax) ÷ (Number of shares)
where,
Net income after tax would be
= {Net income × (1 - applicable tax rate)}
= {(50 lakhs × (1 - 0.35)}
= 50 lakhs × 0.65
= $32.5 lakhs
And, the number of shares is 5 lakhs
So, the earning per share would be
= ($32.5 lakhs) ÷ (5 lakhs shares)
= $6.5 per share
2. The formula is given below for the dividend payout ratio.
= Dividend declared per share ÷ Earning per share
= $2 ÷ $6.5
= 30.77%
The dividend payout ratio is always expressed in percentage
3. For Price earning ratio:
= Price of the share prevalent on stock exchange ÷ Earning per share
= $200 ÷ $6.5
= 30.77
The market price per share is known as the share price prevalent on stock exchange
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