The price/earnings ratio indicates the:
A) dividend yield of the company.
B) market price of $1 of earnings.
C) percentage of common stock financed by debt.
D) ease of selling inventory.

Question

Quizplus · Accepted Answer

The price/earnings ratio (P/E ratio) is calculated by dividing the market price per share by the earnings per share. It indicates the market price of $1 of earnings. A high P/E ratio typically means that investors are optimistic about the company's future earnings potential, while a low P/E ratio may signal that investors are not as optimistic about the company's future earnings growth. The P/E ratio is not related to the dividend yield, percentage of common stock financed by debt, or ease of selling inventory.

The Price/earnings Ratio Indicates The