Which of the following is NOT a correct statement about the price/earnings ratio?
A) A high P/E ratio is often taken to mean the ﬁrm has signiﬁcant prospects for future growth.
B) A P/E ratio of 15 means investors are willing to pay $15 for each $1 of current earnings.
C) Care must be taken in interpreting very high P/E ratios since they can result from a ﬁrm having very low earnings.
D) A P/E ratio of 15 means the ﬁrm's shares are selling for 15 times current earnings.
E) A ﬁrm with high earnings per share will also have a very high P/E ratio.

Question

Quizplus · Accepted Answer

A firm with high earnings per share does not necessarily have a high P/E ratio. The P/E ratio is calculated as the price per share divided by earnings per share, so it also depends on the price of the stock.

Which of the Following Is NOT a Correct Statement About