ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The company is much profitable than the former company
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The company is much efficient than the former company
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The company is expected to grow at a much faster pace than the former company
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The company sales are much larger than the former company
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Detailed explanation-1: -Companies in different industries usually have different P/E ratios. One reason for this is industry-related differences in earnings growth. When companies report strong earnings growth, investors tend to be more willing to accept a higher share price or a higher P/E ratio.
Detailed explanation-2: -Share Price ÷ Earnings Per Share = P/E Ratio You generally use the P/E ratio by comparing it to other P/E ratios of companies in the same industry or to past P/E ratios of the same company. If you are comparing same-sector companies, the one with the lower P/E may be undervalued.
Detailed explanation-3: -A high PE ratio means that a stock is expensive and its price may fall in the future. A low PE ratio means that a stock is cheap and its price may rise in the future. The PE ratio, therefore, is very useful in making investment decisions.
Detailed explanation-4: -PE is Price to earning ratio. Industry PE is the average price-to-earning ratio of a particular sector or industry. It’s used as a benchmark to compare the PE of a stock to the PE of an entire industry.