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 a ______ ratio.

liquidity

profitability

solvency

market

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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 relationship between a company's stock price and its earnings per share (EPS). It helps investors assess whether a stock is overvalued or undervalued.

Identify the category of financial ratios: Financial ratios are typically grouped into categories such as liquidity, profitability, solvency, and market ratios. Each category serves a specific purpose in analyzing a company's financial health.

Determine the purpose of the PE ratio: The PE ratio is primarily used by investors and analysts to evaluate the market value of a company's stock relative to its earnings. This makes it a market ratio, as it focuses on stock valuation and investor behavior rather than operational or financial stability.

Compare the PE ratio to other types of ratios: Liquidity ratios measure a company's ability to meet short-term obligations, profitability ratios assess a company's ability to generate profit, and solvency ratios evaluate long-term financial stability. The PE ratio does not fit into these categories because it is focused on market valuation.

Conclude that the PE ratio is a market ratio: Based on its purpose and usage, the PE ratio is classified as a market ratio, which is used to analyze stock performance and investor sentiment in the market.