What does an increase in a company's price-to-earnings ratio generally indicate?
A)That the market expects earnings to decrease in the future.
B)That the market expects earnings to grow in the future.
C)That the market expects the payout ratio increase.
D)That the shareholders expect the market price of the shares to decline.

Question

Quizplus · Accepted Answer

An increase in a company's price-to-earnings ratio generally indicates that the market expects earnings to grow in the future. This is because investors are willing to pay more for each dollar of earnings the company generates. A high P/E ratio can also indicate that the company is overvalued, but in general, a higher P/E ratio suggests that investor sentiment is positive about the company's future earnings potential.

What Does an Increase in a Company's Price-To-Earnings Ratio Generally