Question

How would you rank the four firms in terms of financial performance? Disney, Boeing, IBM and PH. and What factors might account for big differences in P/E ratios?

Answer 1

The few financial metric of the four firms are presented below

Company	Return on Equity	Net Profitability	P/E
Disney	21.94%	18.46%	15.65
Boeing	985.40%	10.34%	24.26
IBM	50.34%	10.97%	14.51
PH	24.82%	9.69%	16.75

A high return on equity is definitely associated with a high P/E ratio wherein investors are willing to pay a premium for the share if the company has demonstrated high return on equity in the past. A high net margin also supports the high P/E . In this case however, the difference in P/E is primarily due to difference in the return on equity and the growth that has been exhibited by these companies.