Are price/earnings ratios typically different for firms in the energy equipment sector and firms in the hotel, restaurant and leisure sector? To answer this question, 15 firms in each sector are randomly selected and the price/earnings ratios recorded for each. Which of the following is the better method for testing whether the sectors typically differ in price/earnings ratio?
A)Sign test
B)Data transformation and t-confidence interval of transformed data
C)Mann-Whitney Test
D)Independent samples t-test

Question

Quizplus · Accepted Answer

The Mann-Whitney Test is the better method for comparing the price/earnings ratios of two independent samples (in this case, firms in the energy equipment sector vs. firms in the hotel, restaurant, and leisure sector) when the data may not follow a normal distribution, which is a common scenario with financial ratios.

Are Price/earnings Ratios Typically Different for Firms in the Energy