Which financial indicator shows the current market's evaluation of a stock,based on its earnings?
A) debt to asset ratio
B) price/earnings ratio
C) coverage of fixed charges
D) debt to equity ratio
E) times interest earned

Question

Quizplus · Accepted Answer

Price/earnings ratio (P/E ratio) shows the current market's evaluation of a stock based on its earnings. It is calculated by dividing the stock price by the earnings per share (EPS). A high P/E ratio indicates that investors are willing to pay more for each dollar of earnings, which may mean that they have high expectations for the company's future growth. On the other hand, a low P/E ratio may indicate that the company is undervalued or that investors have low expectations for its future growth.

Which Financial Indicator Shows the Current Market's Evaluation of a Stock,based