Certified Management Accountant Practice Exam 2026 – The Comprehensive All-in-One Guide to Exam Success!

Question: 1 / 430

How is the value of shares calculated?

Number of shares x Total assets

Number of shares x Retained earnings

Number of shares x EPS x P/E ratio

The value of shares is calculated by multiplying the number of shares by the earnings per share (EPS) and the price-to-earnings (P/E) ratio. This formula captures both the earnings generated by the company and how those earnings are valued in the market.

EPS reflects the company's profitability on a per-share basis, providing insight into how much money the company earns attributable to each share. The P/E ratio is a measure of how much investors are willing to pay for each dollar of earnings, indicating market expectations regarding growth and inherent risks.

Thus, by multiplying the number of shares by both EPS and the P/E ratio, you can effectively estimate the market value of equity and understand how market participants are pricing the company's earnings potential. This approach is commonly used in financial analysis to value stocks, making it a fundamental concept for management accountants and investors alike.

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Number of shares x Market capitalization

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