One Problem with the Price-Earnings Ratios Commonly Reported Is That

question 26

Multiple Choice

One problem with the price-earnings ratios commonly reported is that

• A) it divides share price, which reflects the present value of future earnings by historical earnings.
• B) it divides share price, which reflects the present value of book value by historical earnings.
• C) it does not take into consideration the present value of future earnings.
• D) its based on analysts' expectations.

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Definitions:

Conglomerate

A large corporation that owns a collection of different companies in various sectors or industries.

Return Rate

The profit or deficit experienced by an investment during a certain period, represented as a portion of the initial investment's value.

Market Economy

An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and not by government intervention.

Investment Project

A project undertaken by individuals, companies, or governments aiming at generating future profits through capital expenditure.