Which of the following is NOT a correct statement about the price/earnings ratio?
A) A high P/E ratio is often taken to mean the firm has significant prospects for future growth.
B) A P/E ratio of 15 means investors are willing to pay $15 for each $1 of current earnings.
C) Care must be taken in interpreting very high P/E ratios since they can result from a firm having very low earnings.
D) A P/E ratio of 15 means the firm's shares are selling for 15 times current earnings.
E) A firm with high earnings per share will also have a very high P/E ratio.

Question

Quizplus · Accepted Answer

A firm with high earnings per share (EPS) does not necessarily have a high P/E ratio. The P/E ratio is determined by both the market price per share and the earnings per share. A firm can have high EPS but if its share price is not proportionately high, it may not have a high P/E ratio.

Which of the Following Is NOT a Correct Statement About