Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Ratios: Price-Earnings Ratio (PE Ratio)

Financial Accounting

14. Financial Statement Analysis

Ratios: Price-Earnings Ratio (PE Ratio)

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Multiple Choice

The price-earnings (PE) ratio is calculated as per share divided by per share. Which of the following correctly completes the formula?

Market price per share divided by dividends per share

Market price per share divided by earnings per share

Earnings per share divided by market price per share

Dividends per share divided by earnings per share

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Verified step by step guidance

Understand the concept of the Price-Earnings (PE) ratio: The PE ratio is a financial metric used to evaluate the valuation of a company's stock. It shows how much investors are willing to pay for each dollar of earnings.

Identify the formula for the PE ratio: The formula is Market Price per Share divided by Earnings per Share. This reflects the relationship between the stock's market price and the company's earnings.

Clarify why other options are incorrect: Dividends per share are not used in the PE ratio calculation, as the PE ratio focuses on earnings, not dividends. Similarly, reversing the formula (Earnings per Share divided by Market Price per Share) would not represent the PE ratio.

Relate the PE ratio to its practical use: Investors use the PE ratio to compare companies within the same industry or to assess whether a stock is overvalued or undervalued.

Summarize the correct formula: The PE ratio is calculated as Market Price per Share divided by Earnings per Share, which is the correct completion of the formula.