RupeeCase
Education . Corporate Finance . 2 of 3
P/E ratio . before and after a 1:5 split
|
Price (Rs) |
EPS (Rs) |
P/E |
| BEFORE SPLIT |
500 |
12.50 |
40x |
| AFTER SPLIT |
100 |
2.50 |
40x |
Bonus issue balance sheet . 1:1 bonus
Share Capital
Rs 100 cr
Rs 200 cr
Reserves
Rs 900 cr
Rs 800 cr
Total Equity
Rs 1000 cr
Rs 1000 cr
P/E unchanged. Balance sheet unchanged. Ownership percentage unchanged. The only thing that moved is the number on the screen.
Bonus issue transfers reserves to share capital. No new money enters the business. The company rearranged its own equity and sent you a bigger number in the shares column.