Following information is available in respect of a company named, as Beta Ltd Particulars Amount Profit before taxes Rs 50 lakhs Dividend declared per share Rs2 Price of the share prevalent on stock exchange Rs 200 Applicable tax rate 35% Share capital of company 5 lakh shares of Rs 10 each Calculate- 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 formulas and calculations are shown below:
1. Earning per share
= (After tax net income) ÷ (Number of shares)
where,
After tax net income 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. For Dividend payout ratio, the formula is given below
= Dividend declared per share ÷ earning per share
= $2 ÷ $6.5
= 30.77%
3. For Price earning ratio:
= Price of the share prevalent on stock exchange ÷ earning per share
= $200 ÷ $6.5
= 30.77
The Price of the share prevalent on stock exchange is also called market price per share
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