New Venture has a forward P/E ratio of 38.12. Value Company has a forward P/E ratio of 12.25. This means that if EPS stays the same for both companies, the investor will recoup their investment in nearly a third of the time with Value Company that it will take to recoup the investment in New Venture.

Question

Quizplus · Accepted Answer

The forward P/E ratio indicates how many years it would take for an investor to recoup their investment through the company's earnings, assuming the earnings remain constant. A lower P/E ratio (12.25 for Value Company) suggests a shorter time to recoup the investment compared to a higher P/E ratio (38.12 for New Venture), thus making the statement true.

New Venture Has a Forward P/E Ratio of 38