A business has total assets of Rs. 1,000,000, EPS of Rs. 1, Net Income of Rs. 80,000, PE ratio of 12, and Price-to-Book ratio of 1.3. Calculate the Asset-to-Equity ratio.

Practice question from NISM XV Mock Test 5 — bank. The correct answer is highlighted below with a full explanation.

Options

A

1.13
1.35

Correct answer
C

5.40
D

2.33

Why this is the answer

Number of shares equals Net Income divided by EPS, which is 80,000 shares. Market price per share equals PE multiplied by EPS, giving Rs. 12. Book value per share equals market price divided by P/B ratio, or approximately Rs. 9.23. Total equity equals book value per share multiplied by number of shares, which is about Rs. 738,400. Asset-to-equity ratio equals total assets divided by equity, giving approximately 1.35.

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