Which of the following variables affect the P/E ratio?
I. capital structure of a firm
II. amount of dividends to be paid
III. inflation rate
IV. earnings rate of growth
A) I, II and III only
B) I, II and IV only
C) I, III and IV only
D) I, II, III and IV

Question

Quizplus · Accepted Answer

All the listed variables affect the P/E ratio. The capital structure influences a firm's risk and earnings distribution, dividends impact investor perception and demand, inflation affects the discount rate and future earnings value, and the earnings growth rate directly influences future earnings expectations, all of which are factored into the P/E ratio.

Which of the Following Variables Affect the P/E Ratio