Question

price to earnings ratio definition and how to calculate

Answer #1

PE Ratio is Price of a Stock relative to its Earnings. It also tells how much an investor is ready to pay for a given Earning. A high PE Ratio tell that the stock is over-valued. A low PE Ratio tells that the stock is undervalued. PE Ratio is measured as multiple or times. i.e. 10 times OR 20 times.

PE Ratio is caculated by the following formula : -

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A profitable high-tech company would generally have: a. high
price-to-book ratio and high price-to-earnings ratio. b. high
price-to-book ratio and low price-to-earnings ratio. c. low
price-to-book ratio and high price-to-earnings ratio. d. low
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A price-to-earnings (PE) ratio identifies how much investors are
currently willing to pay for each $1 of earnings a firm produces.
All else constant, a PE ratio will increase when which factors
below increase?
Check all that apply.
a.payout ratio
b.retention ratio
c.required return
d.earnings growth rate

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