The possibility that the post-merger P/E will move in the direction opposite to the immediate post-merger earning per share. Introduction : Earnings per share (EPS): It is the profit per outstanding share of a public company. A higher EPS indicates a higher value of the company because investors are ready to pay a higher price for one share of the company. P/E ratio: It is calculated by dividing the current share price of a company by its EPS. It helps in valuing the present as well as future profitability of a company.

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Chapter 20, Problem 7DQ

Summary Introduction

To explain: The possibility that the post-merger P/E will move in the direction opposite to the immediate post-merger earning per share.

Introduction:

Earnings per share (EPS):

It is the profit per outstanding share of a public company. A higher EPS indicates a higher value of the company because investors are ready to pay a higher price for one share of the company.

P/E ratio:

It is calculated by dividing the current share price of a company by its EPS. It helps in valuing the present as well as future profitability of a company.

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