In relation to the price-earnings ratio (P/E ratio), which statement is incorrect?
A) Higher P/E ratios tend to be associated with growth companies.
B) As expectations of future profits increase the P/E ratio tends to fall.
C) It measures how much investors are willing to pay for each dollar of earnings.
D) A P/E ratio of 5.2 means that the shares of the company are selling at 5.2 times current profits.

Question

Quizplus · Accepted Answer

As expectations of future profits increase, the P/E ratio tends to increase rather than fall. This is because investors are willing to pay more for each dollar of expected earnings.

In Relation to the Price-Earnings Ratio (P/E Ratio), Which Statement