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

Which of the following factors does NOT influence a firm's Price-Earnings (P/E) ratio?

The firm's dividend payout policy

The firm's expected earnings growth rate

The firm's capital structure

The firm's inventory costing method (e.g., FIFO vs. LIFO)

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Verified step by step guidance

Understand the concept of the Price-Earnings (P/E) ratio: The P/E ratio is a valuation metric that compares a company's current share price to its earnings per share (EPS). It reflects investor expectations about future earnings growth and risk.

Identify factors that influence the P/E ratio: The firm's dividend payout policy, expected earnings growth rate, and capital structure can all impact investor perception of risk and growth potential, thereby influencing the P/E ratio.

Analyze the inventory costing method (e.g., FIFO vs. LIFO): While inventory costing methods affect reported earnings and financial statements, they do not directly influence the P/E ratio because the ratio focuses on broader investor expectations and market valuation rather than accounting methods.

Clarify why the inventory costing method does not influence the P/E ratio: The P/E ratio is driven by market factors such as growth expectations and risk, not by specific accounting choices like FIFO or LIFO, which primarily affect internal reporting.

Conclude that the inventory costing method is the correct answer: It does not directly impact the P/E ratio, unlike the other factors listed, which are tied to investor perceptions and market valuation.