The P/E Ratio That Is Based on a Firm's Financial

question 50

Multiple Choice

The P/E ratio that is based on a firm's financial statements and reported in the newspaper stock listings is different from the P/E ratio derived from the dividend discount model (DDM) because

• A) the DDM uses a different price in the numerator.
• B) the DDM uses different earnings measures in the denominator.
• C) the prices reported are not accurate.
• D) the people who construct the ratio from financial statements have inside information.
• E) They are not different-this is a "trick" question.

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Definitions:

Cash Dividend

A payment made by a company out of its profits to its shareholders, usually in the form of cash.

Systematic View

An approach that involves a structured, methodical analysis of a problem, situation, or system.

Events

Occurrences or happenings, often of significance, that are scheduled or observed.