Second Cups has a price-earnings ratio of 16. Tam Hortons has a price-earnings ratio of 19. Thus, you can state with certainty that one share of stock in Tam Hortons':
A) Has a higher market price than one share of stock in Second Cups.
B) Has a higher market price per dollar of earnings than one share of Second Cups.
C) Sells at a lower price per share than one share of Second Cups.
D) Represents a larger percentage of firm ownership than does one share of Second Cups' stock.
E) Earns a greater profit per share than does one share of Second Cups' stock.

Question

Quizplus · Accepted Answer

The price-earnings (P/E) ratio measures the market price per dollar of earnings. A higher P/E ratio, as seen with Tam Hortons, indicates a higher market price per dollar of earnings compared to Second Cups.

Second Cups Has a Price-Earnings Ratio of 16