Day: February 16, 2021

A company makes annual profits of £10 million before interest payable of £2 million and ordinary dividends of £5 million.

It has in issue 20 million shares of £0.20 each, currently valued on the Stock Exchange at £5.00 each.

What is the company’s Price/Earnings (P/E) ratio? 

Select ONE answer:

1. 10
2. 12.5
3. 20
4. 33.3 

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – £10M – £2M = £8M / 20M shares = £0.4 EPS ==> £5.00 / £0.40 = 12.5 P/E
3. Not correct
4. Not correct

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