CMA Study Group

Deps or beps for PE ratio

  • 1.  Deps or beps for PE ratio

    Posted 11 days ago
    Hey there 

    While computing PE ratio there's a controversy regarding whether to use deps or beps. Because Hock, Wiley and Gleim uses contrasting equations. Last week for my exam, I've been asked to compute PE ratio and I used deps because I remember how I used beps to find PE ratio and I ended up arriving at the wrong answer. So kindly help me in arriving at a proper solution. 

    Thank you

  • 2.  RE: Deps or beps for PE ratio

    Posted 11 days ago
    Hi there,

    From the CMA Exam support package, the formula is stated as follows. Wiley also states the same formulas.

    r(1) Market-to-book ratio = current stock price / book value per share r
    (2) Price earnings ratio = market price per share / EPS s.
    Book value per share = (total stockholders' equity – preferred equity) / number of common shares outstanding u
    (1) Basic EPS = (net income – preferred dividends) / weighted average common shares outstanding (Number of shares outstanding is weighted by the number of months shares are outstanding) u
    (2) Diluted EPS = (net income – preferred dividends) / diluted weighted average common shares outstanding (Diluted EPS adjusts common shares by adding shares that may be issued for convertible securities and options)

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    Sanobar Anjum Siddiqui
    Regina SK