Question

ABC Corp. has a market price of $15 and a Price/Earnings multiple of 10. What was the corporation's Earnings Per Common Share?

Answer 1

The correct answer is: $1,5.

Step-by-step explanation:

The Price-to-Earnings ratio or P/E ratio is the relationship between a company's market value of per-share common stock and its earning per share. It is obtained by dividing the two factors previously mentioned and the result is the P/E ratio which is also called the multiple.

Thus, in the example:

P/E ratio = (market value per share) / (earning per share)

We can deduct:

Earnings per share = (market value per share) / P/E ratio

Then:

Earnings per share = $15/10

Earnings per share = $1,5