Which company has the most risk from an investor's standpoint? Firm A has a PE of 92 times and Firm B has a PE of 16 times. Assume both firms operate in the same industry. Firm A has fewer shares outstanding than Firm B.
A) Firm A because it has the higher PE ratio.
B) Firm B because it has a lower PE ratio.
C) Firm A because it has fewer shares outstanding.
D) Firm B because it has more shares outstanding.

Question

Quizplus · Accepted Answer

Firm A has a very high PE ratio of 92 times which means that investors are paying a premium for each dollar of earnings. This indicates that the company may be overvalued and there is more risk for investors. The number of shares outstanding is not directly related to the risk factor in this case.

Which Company Has the Most Risk from an Investor's Standpoint