In Relation to the Price-Earnings Ratio (P/E Ratio), Which Statement

question 44

Multiple Choice

In relation to the price-earnings ratio (P/E ratio) , which statement is incorrect?

• A) Higher P/E ratios tend to be associated with growth companies.
• B) As expectations of future profits increase the P/E ratio tends to fall.
• C) It measures how much investors are willing to pay for each dollar of earnings.
• D) A P/E ratio of 5.2 means that the shares of the company are selling at 5.2 times current profits.

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Definitions:

Statement of Cash Flows

A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives from its operational, investing, and financing activities.

Investing Activities

Transactions involving the acquisition or disposal of long-term assets and other investments not considered cash equivalents.

Financing Activities

Transactions related to raising capital or repaying investors, reflecting how a company funds its operations and growth.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing ownership equity spread among shareholders.