Question

The following details have been extracted from the financial statements of a company:

Share Capital :		Current Liabilities	Rs. 2,00,000
Equity(Rs.10)	Rs. 8,00,000	Discount on Shares	Rs. 10,000
12% Preference Shares	Rs. 2,00,000	Fixed Assets	Rs. 19,00,000
General Reserve	Rs. 3,78,000	Current Assets	Rs. 4,68,000
10% Debentures	Rs. 8,00,000

You are required to calculate Return On Investment, Return on Shareholders’ Funds, EPS, Book value per share and P/E ratio if the market price of the share is Rs. 34, the net profit after tax was Rs. 3,00,000, and the tax had amounted to Rs. 1,00,000. 

Answer 1

Profit before interest and tax = Rs. 3,00,000 + Debenture interest + Tax

 Rs. 3,00,000 + Rs. 80,000 + Rs. 1,00,000 

= Rs.4,80,000

Capital Employed = Equity Share Capital + Preference Share Capital + Reserves + Debentures – Discount on Shares 

= Rs. 8,00,000 + Rs. 2,00,000 + Rs. 3,78,000 + Rs. 8,00,000 – Rs. 10,000 

= Rs. 21,68,000

Return on Investment = (Profit before Interest and Tax/ Capital Employed) × 100 

= (Rs. 4,80,000/Rs. 21,68,000) × 100 

= 22.14%

Return on Shareholders’s Fund = Profit after Tax/ Shareholder’s Fund × 100 

= Rs. 3,00,000/Rs. 13,68,000 × 100 

= 13.84%

EPS = Profit available for equity shareholders/ No. of Equity Shares

 Rs. 2,76,000/ 80,000 = Rs. 3.45

Profit available to equity = Profit after Tax – Preference Dividend shareholders

= Rs. 3,00,000 – Rs. 24,000 = Rs. 2,76,000

P/E Ratio = Market price of a share/ Earnings per share

= 34/3.45 

= 9.855 Times

Book Value per share = Equity Shareholders’ funds / No. of Equity Shares

= Rs. 11,68,000/80,000 shares 

= Rs. 14.6