Question

Disney: P/E Ratio 16.69

Netflix: P/E Ratio 89.76

1. How would you interpret the ratio?
2. Which one has a higher ratio?

Answer 1

part A

Price earning ratio suggest what the market gives to the company and also indicate hoe stock is reflect to the market or valued

The high PE ratio states there will be a high growth in the upcoming financial year and it can be overpricing of the stock too

The low PE ratio states about the undervalue of stock or negatively affect the future growth

Here disney ratio is 16.69 which is comparatively low to the netflix, so disney is going through a tough period and there will not be a growth to be expected

But in the case of netflix the PE ratio is so high compared to disney, that depict the good future growth and may be the overvaluation of stock too

Part B , higher ratio is for netflix = 89.76