Richard Has Been Following Information About a Firm on a Financial

question 147

Multiple Choice

Richard has been following information about a firm on a financial website. He has noticed that the firm's price-to-earnings ratio (P/E) has been steadily rising. Richard can conclude from this result that the company:

• A) is in serious financial trouble.
• B) has just issued more shares of common stock.
• C) has recently increased its dividend.
• D) may have a growth in future earnings.

---

Definitions:

Trading Securities

Financial assets that are bought and sold with the intention of generating profits from short-term price fluctuations.

Fair Value

An estimate of the price at which an asset or liability could be traded in a fair transaction between willing parties, other than in a forced or liquidation sale.

Cost Method

An accounting method used to record investments, where the investment is recorded at its acquisition cost without recognizing periodic gains or losses.

Outstanding Stock

The total shares of a company's stock that are currently owned by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers and insiders.