Consider Two Firms with the Same P/E Ratio

question 61

Essay

Consider two firms with the same P/E ratio.Explain how one could be described as expensive compared to the other.

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Definitions:

Perpetual Inventory System

This is an inventory accounting system where updates are made continuously to the inventory accounts and cost of goods sold as transactions occur, providing real-time inventory information.

Stockouts

A situation in inventory management when the demand or requirement for an item cannot be fulfilled from the current inventory or stock.

Periodic Systems

An inventory system where inventory counts and cost of goods sold calculations are conducted at specific intervals, such as monthly or yearly.

Inventory Shrinkage

The loss of products between acquisition and sale, often due to theft, damage, or errors in inventory management.