The Price Earnings (P/E) ratio is calculated by dividing the market price per share by the Earnings Per Share (EPS).

1. Calculate the number of ordinary shares:

Total value of ordinary shares / Nominal value per share

$2,250,000 / $0.50 = 4,500,000 shares

2. Calculate the Earnings Per Share (EPS):

Profit for the year / Number of ordinary shares

$1,350,000 / 4,500,000 shares = $0.30

3. Calculate the P/E ratio:

Market price per share / EPS

$4.75 / $0.30 = 15.83

B. 7.92: This figure does not result from the correct application of the P/E ratio formula using the provided financial data.

C. 10.56: This is an incorrect calculation, likely resulting from an error in determining either the earnings or the number of shares outstanding.

D. 9.31: This result is arithmetically incorrect. It may stem from using an improper value, such as book value, instead of earnings per share.

1. International Accounting Standards Board (IASB). (2003). International Accounting Standard 33: Earnings Per Share.

IAS 33

Paragraph 10: "Basic earnings per share shall be calculated by dividing profit or loss attributable to ordinary equity holders of the parent entity (the numerator) by the weighted average number of ordinary shares outstanding (the denominator) during the period." This standard supports the calculation of EPS as $1

350

000 / 4

500

000 shares.

2. Damodaran

A. (2005). Valuation Approaches and Metrics: A Survey of the Theory and Evidence. Stern School of Business

New York University.

Page 23

Section: Earnings Multiples: "The price-earnings ratio (PE) is the most widely used and misused of all multiples. It is defined as the ratio of the market price per share to the earnings per share: PE = Market Price per Share / Earnings per Share." This academic source confirms the fundamental formula used in the calculation.

3. Whittington

G. (2005). The Adoption of International Accounting Standards in the European Union. European Accounting Review

14(1)

127-153. https://doi.org/10.1080/0963818042000338012

This peer-reviewed article discusses the framework of IFRS

which includes IAS 33. The principles outlined in the standard for calculating EPS are foundational for deriving the P/E ratio

a key performance indicator used in financial analysis across the EU and globally. The calculation method used is consistent with these principles.