Question $6$

a$)$ Define the $\frac{P}{E}$ ratio and explain its importance to those interested in company financial

analysis. Include in your answer explanations of what $\text{'}P\text{'}$ and $\text{'}E\text{'}$ stand for, and what the

ratio, and movements in the ratio, can indicate to investors and others. Also explain how

the $\frac{P}{E}$ ratio is related to the concept of EPS?

$(8$ marks$)$

b$)$ LVG p$/$c had post$-$tax profits for $2015$ of $15,000,000$ and an issued share capital of

$18,000,000$ comprising $12,000,000$ ordinary shares of $50$ p each and $12,000,000110\%$

preference shares. $($Financial year$-$end is ${31}^{st}$ December.$)$

Required:

Calculate the basic EPS for the year ended ${31}^{st}$ December $2015.$

$(4$ marks$)$

c$)$ Using the same basic information as given in part b$),$ now assume that LVG plc had split the

$12,000,000$ shares of $50$ p each into $24,000,000$ shares of $25$ p each $($i$.$e$.$ a $2-$for$-1$ split$)$ at $30$

June $2015$

Required:

Calculate the basic EPS for the year ended ${31}^{st}$ December $2015.$

d$)$ A different company, Pellegrini plc$,$ at ${31}^{st}$ December $2015,$ had the following;

Issued capital of $12,000,000$ ordinary shares of $50$ p each nominal value;

Post$-$tax earnings for the year of $13,800,000$;

An average market price per share of $12$; and

$,$ Share options exist consisting of $6,000,000$ shares issuable in $2016$ at $9\mathrm{.}75$ per

share.

Required:

Calculate the diluted EPS for Pellegrini plc for the year ended ${31}^{st}$ December $2015.$