A P/E ratio is calculated in the middle of the accounting year.For a given share price,the company could use the most recent annual EPS,or it could use the total of the most recent four quarterly EPS numbers.Which of the following statements is not true?
A)The ratio will be larger if the most recent annual EPS is used when earnings are falling.
B)The ratio will be smaller if the EPS for the last four quarters are used when earnings are rising.
C)The ratio will be smaller if the most recent annual EPS is used when earnings are falling.
D)The ratio will be larger if the EPS for the last four quarters are used when earnings are falling

Question

Quizplus · Accepted Answer

When earnings are falling, using the most recent annual EPS will result in a lower P/E ratio, as the price (numerator) will remain constant while the earnings (denominator) decrease. Therefore, statement A is not true. Statements B, C, and D are all true.

A P/E Ratio Is Calculated in the Middle of the Accounting