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On the day of record the market price of its shares was 20

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In 2010 the earnings per share of SOUAET Ltd was 1 yuan. The company was considering a 1 for 1 bonus issue. On the day of record, the market price of its shares was 20 yuan. One financial analyst commented: "P/E ratio of SOUAET shares is 20, based on the current share price. After the bonus issue the share price should fall to 10 yuan, with the result that the P/E ratio should fall to 10. That will increase the marketability of SOUAET shares". Is the comment on the P/E ratio correct? Provide reasons.

Reference no: EM13481062

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