When Analyzing a Price-Earnings Ratio

question 76

Multiple Choice

When analyzing a price-earnings ratio,

• A) A higher price-earnings ratio indicates pessimism because the price is too high compared to the earnings.
• B) The higher the price-earnings ratio, the more investors are paying for earnings.
• C) A low ratio indicates that investors expect higher earnings in the future.
• D) Price-earnings ratios are helpful when comparing two companies in the same industry, but not to the market in general.
• E) The price-earnings ratio alone provides enough information to allow an investor to decide whether to invest in a particular stock.

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Definitions:

Pledge

A promise or agreement to do something, often backed by an assurance in the form of property or rights as a security for the fulfillment of an obligation.

UCC

The Uniform Commercial Code is a collection of legal guidelines that regulate business dealings across the United States.

Creditor

An individual or entity that is owed money or other forms of assets by a debtor.

Field Warehouse

A secured area within a business's premises that is operated by an independent warehousing company for storing pledged goods under a field warehousing agreement.