Two companies operate in the same industry, but one has a much higher PE ratio than the other. One reason for the difference in PE ratio could be the quality of earnings.

Question

Quizplus · Accepted Answer

The quality of earnings refers to the sustainability and reliability of a company's earnings. If one company has a higher quality of earnings, investors may be willing to pay a higher price for its stock, resulting in a higher PE ratio. On the other hand, if a company's earnings are less reliable or sustainable, investors may be less willing to pay a high price for its stock, resulting in a lower PE ratio.

Two Companies Operate in the Same Industry, but One Has