Which of the Following Is NOT True About the P/E

question 82

Multiple Choice

Which of the following is NOT true about the P/E ratio?

• A)A comparison of one company with its peers also involves a great deal of subjectivity regarding company-specific characteristics.
• B)P/E ratios only work well on companies in the high growth stage of their lifecycle.
• C)P/E ratios are uninformative when companies have negative or very small earnings.
• D)The volatile nature of earnings implies a great deal of volatility in P/E multiples.

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Definitions:

Output

The quantity of goods or services produced by a firm, industry, or economy within a certain period.

Per-Unit Cost

The cost associated with producing one unit of a product, calculated by dividing total production costs by the number of units produced.

Diseconomies of Scale

The situation where a company or business grows so large that the costs per unit increase, typically due to inefficiencies.

Economies of Scale

Economies of scale describe the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.