The P/E ratio can be viewed as a payback period

Question

The P/E ratio can be viewed as a payback period - the higher the multiple, the longer the payback period and the more the investor is expecting earnings to increase.

Quizplus · Accepted Answer

The P/E (Price-to-Earnings) ratio can indeed be interpreted as a payback period, where a higher P/E suggests a longer duration for an investor to recoup their investment through the company's earnings, underlining an expectation of future earnings growth.