Al's has a price-earnings ratio of 18.5. Ben's also has a price-earnings ratio of 18.5. Which one of the following statements must be true if Al's has a higher PEG ratio than Ben's?
A) Al's has more net income than Ben's.
B) Ben's is increasing its earnings at a faster rate than Al's.
C) Al's has a higher market value per share than does Ben's.
D) Ben's has a lower market-to-book ratio than Al's.
E) Al's has a higher earnings growth rate than Ben's.

Question

Quizplus · Accepted Answer

The PEG ratio (Price/Earnings to Growth) is a valuation metric that considers a company's earnings growth rate. If Al's has a higher PEG ratio than Ben's, despite having the same P/E ratio, it means Ben's must be increasing its earnings at a faster rate than Al's, making the growth component of Al's PEG ratio relatively lower.

Al's Has a Price-Earnings Ratio of 18