Question

Consider the following data regarding EPS, the PE ratio and stock price.
Earnings per sharePrice earnings ratioStock price

Corporation A       $510      $50

Corporation B       $1            200     $200
From the information above, we can conclude that...

		corporation A is less profitable than corporation B
		corporation A does not pay a dividend, but Corporation B does
		corporation B has less debt than corporation A
		corporation B may be perceived to have greater growth potential than Corporation A

Answer 1

Price per share = P/E * EPS

	EPS	P/E ratio	Stock price
Corporation A	510	50	25500
Corporation B	1200	200	240000

From the above data, we can conclude that corporation A is less profitable than corporation B; as EPS(A) < EPS(B)

We can't conclude "corporation A does not pay a dividend, but Corporation B does" as no information about dividends (DPS, Dividend yield) are given

"corporation B has less debt than corporation A" can also not be concluded as no information about the company's capital structure is given

companies that grow faster than average typically have higher P/Es, therefore "corporation B may be perceived to have greater growth potential than Corporation A"

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