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 (P/E) ratio is calculated by ______.

dividing the market price per share by earnings per share (EPS)

adding the market price per share to earnings per share (EPS)

dividing earnings per share (EPS) by the market price per share

multiplying the market price per share by earnings per share (EPS)

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Verified step by step guidance

Understand the concept of the Price-Earnings (P/E) ratio: It is a financial metric used to evaluate the relative value of a company's shares by comparing its market price per share to its earnings per share (EPS).

Identify the formula for calculating the P/E ratio: The formula is \( \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share (EPS)}} \).

Analyze the options provided in the problem: The correct calculation involves dividing the market price per share by the earnings per share (EPS), as per the formula.

Eliminate incorrect options: Adding, dividing EPS by market price, or multiplying market price by EPS are not consistent with the formula for the P/E ratio.

Conclude that the correct answer is the option stating 'dividing the market price per share by earnings per share (EPS)' based on the formula and understanding of the P/E ratio.