Company X Has a P/E Ratio of 16 in Year

question 126

Multiple Choice

Company X has a P/E ratio of 16 in year 2010 and 16.5 in 2011. In 2012, its P/E ratio is 24. The best way to interpret these data is to conclude that:

• A) the stock is overpriced and should be sold.
• B) the stock has great growth capacity and should be bought.
• C) other financial results and news should be examined to determine the cause of the P/E ratio change.
• D) the stock is underpriced and should be bought.

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Definitions:

Management Accounting

A field of accounting focused on providing financial data and analysis to managers within the organization for decision-making.

Information Needs

The data and information requirements of users, including managers and stakeholders, to make informed decisions.

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A certification for accounting professionals that demonstrates expertise in financial accounting and reporting, auditing, taxation, and business law, obtained by passing the CPA exam.

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Professionals specializing in the preparation and analysis of financial statements and reports, ensuring compliance with accounting standards.