In relation to the price-earnings ratio (P/E ratio), which statement is incorrect?
A) It measures how much investors are willing to pay for each dollar of earnings.
B) Higher P/E ratios tend to be associated with growth companies.
C) A P/E ratio of 9.1 means that the shares of the company are selling at 9.1 times current profits.
D) As expectations of future profits increase the P/E ratio tends to fall.

Question

Quizplus · Accepted Answer

As expectations of future profits increase, investors are willing to pay more for each dollar of earnings, leading to a higher P/E ratio. Conversely, if expectations are lowered, the P/E ratio tends to fall. Therefore, statement D is incorrect.

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