Which of the following statements is CORRECT?
A) If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same.
B) If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be the same.
C) If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.
D) If Firms X and Y have the same earnings per share and market-to-book ratio, they must have the same price earnings ratio.
E) If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and also to be expected to grow at a faster rate.

Question

Quizplus · Accepted Answer

The P/E ratio is calculated by dividing the price per share by the earnings per share. Therefore, if two firms have the same net income, number of shares outstanding, and price per share, their P/E ratios would have to be the same as well. The other statements are not necessarily true.

Which of the Following Statements Is CORRECT