Which one of the following is most apt to cause a profitable,stable firm to have a higher price-earnings ratio?
A)Slow industry outlook
B)Very low current earnings
C)Low market share
D)Low prospect of firm growth
E)Low investor opinion of firm

Question

Quizplus · Accepted Answer

Very low current earnings can lead to a higher price-earnings (P/E) ratio because the P/E ratio is calculated by dividing the current market price of the stock by its earnings per share. If a firm has low earnings currently but is profitable and stable, investors might expect future earnings to improve, thus they are willing to pay more for the stock now, resulting in a higher P/E ratio.

Which One of the Following Is Most Apt to Cause