Asked by Eunice Gwendolyn on May 02, 2024
Verified
High P/E ratios tend to indicate that a company will _______, ceteris paribus.
A) grow quickly
B) grow at the same speed as the average company
C) grow slowly
D) not grow
E) None of the options are correct.
P/E Ratios
The Price-to-Earnings Ratio, a valuation metric comparing a company's current share price to its per-share earnings, used to evaluate stock price reasonableness.
Ceteris Paribus
A Latin term meaning "all other things being equal," used in economics to isolate the effect of one variable by holding others constant.
- Interpret the implications of high P/E ratios and earnings yields on company growth forecasts.
Verified Answer
DC
Daniel CervantesMay 08, 2024
Final Answer :
A
Explanation :
High P/E ratios are often interpreted by investors as an indication that a company is expected to grow quickly in the future, as investors are willing to pay more for each dollar of earnings in anticipation of higher future earnings.
Learning Objectives
- Interpret the implications of high P/E ratios and earnings yields on company growth forecasts.