The price-earnings ratio is not affected by an increase or decrease in the firm's earnings.

Name: The price-earnings ratio is not affected by an increase or decrease in the firm's earnings.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

The price-earnings ratio is calculated by dividing the price per share by the earnings per share. Therefore, if earnings increase, the ratio will decrease, making the stock look more affordable. Conversely, if earnings decrease, the ratio will increase, suggesting that the stock is overpriced.

The Price-Earnings Ratio Is Not Affected by an Increase or Decrease