Suppose a firm that is normally very profitable barely does better than breaking even this year,i.e.,it earns a very small profit.That firm's P/E ratio is likely to be ________.

Question

Quizplus · Accepted Answer

The P/E ratio is calculated as the market price per share divided by earnings per share (EPS). If a firm has very low earnings, the denominator in the P/E ratio calculation is small, which can result in a very high P/E ratio, assuming the market price per share does not decrease proportionally.

Suppose a Firm That Is Normally Very Profitable Barely Does