A standard interpretation of the P/E ratio is that firms with high P/E ratios need to have high growth rates to justify the current price.

Question

Quizplus · Accepted Answer

A high P/E ratio means that investors are willing to pay more per dollar of earnings, indicating high expectations for growth and future earnings. Therefore, firms with high P/E ratios need to have high growth rates to justify the current price.

A Standard Interpretation of the P/E Ratio Is That Firms