The price-earnings ratio measures the premium investors are willing to pay for a company's stock relative to its earnings.

Question

Quizplus · Accepted Answer

This statement is true. The price-earnings ratio, also known as the P/E ratio, is calculated by dividing a company's stock price by its earnings per share (EPS). It is used as a measure of how much investors are willing to pay for each dollar of a company's earnings. A high P/E ratio typically indicates that investors are optimistic about the company's future growth potential, while a low P/E ratio may suggest that the company is undervalued or facing challenges.

The Price-Earnings Ratio Measures the Premium Investors Are Willing to Pay