A price earnings ratio shows:
A) the earnings yield based on market values.
B) the amount the market is willing to pay for $1 of profits
C) the comparison between earnings of different companies.
D) the profitability of ordinary shares

Question

Quizplus · Accepted Answer

A price earnings ratio calculates the amount that the market is willing to pay for $1 of profits. It is calculated by dividing the current market price per share by the earnings per share (EPS) of the most recent 12 month period. This ratio is often used as a measure of how much investors are willing to pay for each dollar of earnings.

A Price Earnings Ratio Shows