Blue Company reported:
$$\begin{array} { l l }
\text { Share price } & \$ 18 \
\text { Net profit } & \$ 3,000 \
\text { Preference dividend } & \$ 500 \
\text { Ordinary dividend } & \$ 1,000 \
\text { Issued ordinary shares } & 1,000 \text { shares }
\end{array}$$
-
The price-earnings ratio per ordinary share is:
A) 1.8:1.
B) 7.2:1.
C) 5.0:1.
D) 3.0:1.

Question

Blue Company reported:
$$\begin{array} { l l } 
\text { Share price } & \$ 18 \
\text { Net profit } & \$ 3,000 \
\text { Preference dividend } & \$ 500 \
\text { Ordinary dividend } & \$ 1,000 \
\text { Issued ordinary shares } & 1,000 \text { shares }
\end{array}$$
-
The price-earnings ratio per ordinary share is:
A) 1.8:1.
B) 7.2:1.
C) 5.0:1.
D) 3.0:1.

Quizplus · Accepted Answer

The price-earnings (P/E) ratio is calculated by dividing the market value per share by the earnings per share (EPS). First, calculate the EPS by subtracting the preference dividend from the net profit and then dividing by the number of issued ordinary shares: $(\$3,000 - \$500) / 1,000 = \$2.5$ per share. Then, divide the share price (\$18) by the EPS (\$2.5) to get the P/E ratio: \$18 / \$2.5 = 7.2:1.

Blue Company Reported - the Price-Earnings Ratio Per Ordinary Share Is: A) 1

Blue Company Reported -
the Price-Earnings Ratio Per Ordinary Share Is:
A) 1