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

Can a company's shares exhibit a negative price-earnings (P/E) ratio?

Yes, if the company reports a net loss, resulting in negative earnings per share.

Yes, but only if the company's share price is negative.

No, the P/E ratio can only be zero or positive.

No, a negative P/E ratio indicates the company has no outstanding shares.

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Verified step by step guidance

Understand the concept of the Price-Earnings (P/E) ratio: The P/E ratio is calculated as the market price per share divided by the earnings per share (EPS). Mathematically, it is expressed as:

\frac{Price}{EPS}

Recognize that EPS can be negative if the company reports a net loss. Since the numerator (price per share) is typically positive, a negative EPS would result in a negative P/E ratio.

Evaluate the statement 'Yes, but only if the company's share price is negative': This is incorrect because share prices cannot be negative in financial markets. Share prices represent the value investors are willing to pay, which is always non-negative.

Analyze the statement 'No, the P/E ratio can only be zero or positive': This is incorrect because a negative EPS can lead to a negative P/E ratio, as explained earlier.

Consider the statement 'No, a negative P/E ratio indicates the company has no outstanding shares': This is incorrect because the number of outstanding shares does not directly affect the P/E ratio calculation. The P/E ratio depends on the price per share and EPS, not the number of shares.