The price/earnings (P/E)ratio tells us how much investors are willing to pay for a dollar of current earnings.In general,investors regard companies with higher P/E ratios as less risky and/or more likely to enjoy higher growth in the future.

Question

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The statement is true. Higher P/E ratios are often seen as a positive indicator of a company's future prospects, as investors are willing to pay more for a share of its future earnings potential. This is because higher P/E ratios may reflect a perception of lower risk, stronger growth prospects, or both. However, it is important to note that P/E ratios alone should not be used as the sole basis for investment decisions, as they may be affected by a wide range of factors that may not necessarily reflect a company's underlying financial strength or potential.

The Price/earnings (P/E)ratio Tells Us How Much Investors Are Willing