The following information is available for Gomez Company.: Which of the following statements is correct?
A) The price to earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2011.
B) The price to earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2011.
C) The price to earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2011.
D) The market price per share and the earnings per share are not statistically related to each other.

Question

The following information is available for Gomez Company.:  Which of the following statements is correct?
A) The price to earnings ratio is 20 and a share of common stock was selling for 20 times the amount of earnings per share at the end of 2011. 
B) The price to earnings ratio is 5.0% and a share of common stock was selling for 5.0% more than the amount of earnings per share at the end of 2011. 
C) The price to earnings ratio is 10 and a share of common stock was selling for 125 times the amount of earnings per share at the end of 2011. 
D) The market price per share and the earnings per share are not statistically related to each other.

Quizplus · Accepted Answer

The price to earnings ratio is calculated by dividing the market price per share by the earnings per share. Therefore, if the price to earnings ratio is 20, it means that a share of common stock was selling for 20 times the amount of earnings per share.

The Following Information Is Available for Gomez Company