If one company has a higher price to earnings ratio than the other. Which company seems...

If one company has a higher price to earnings ratio than the other. Which company seems more expensive and why?

Expert Solution

Price-Earnings Ratio: Price-earnings ratio is the measure of the current market price of the share relative to its earnings. In other words, it is a measure of the amount payable by the investor to acquire the share per $ earnings available to him. Therefore it is computed as the current market price per share ÷ earnings per share. For example, if the present market price of a share is $50.00 and the EPS of the company is $5.00, then the Price-Earnings Ratio is $50.00 / $5.00 = 10 times.

Now, if one company has a higher price to earnings ratio than the other, the company whose P/E Ratio is more seems more expensive since the investor will end up paying a relatively higher amount to obtain right on same $ earning available for him. This is because the investor is bidding on the future prospects of the company with a higher P/E ratio. He is confident about the growth earnings of the company and is willing to pay more amount now than what is required if compared to other company with lower P/E Ratio

ekkarill92 answered 2 years ago

Suppose that a firm has a price-earnings ratio which is higher than a value deemed to...

Suppose that a firm has a price-earnings ratio which is higher than a value deemed to be normal. Investors tend to infer from this information that a. the firm's bonds will increase in their ratings. b. the firm's bonds will decrease in their ratings. c. the firm's stock is over-valued and one should consider selling the stock. d. the firm's stock is under-valued and one should consider buying the stock. e. the firm will be paying increased dividends. For an...

1. The price-earnings ratio P/E is the ratio (market value of one share)/(earnings per share). If...

1. The price-earnings ratio P/E is the ratio (market value of one share)/(earnings per share). If P/E increases by 19% and the earnings per share decrease by 9%, determine the percentage change in the market value. Round your answer to the nearest percentage point. - 2. To produce each product unit, the company spends $1.75 on material and $2.95 on labor. Its total fixed cost is $9000. Each unit sells for $6.15. What is the smallest number of units that...

If a bond is currently trading for a price higher than par, then which of the...

If a bond is currently trading for a price higher than par, then which of the following must be true? Answer: The coupon rate is greater than its yield-to-maturity I have the answer, by why is this?

1.Which nation has a higher rate of imprisonment than any other nation in the world? Saudi...

1.Which nation has a higher rate of imprisonment than any other nation in the world? Saudi Arabia Singapore Iraq The United States 2.The process through which prisoners who appear to have reformed themselves can earn an early release from their prison sentence is called restorative justice. restitution probation parole 3. David has been charged with murder, but his lawyer has persuaded the prosecutor to charge him with manslaughter, a charge that carries a lesser punishment, in exchange for David pleading...

- WHAT IS A LUXURY HOTEL? WHY DO THEY CHARGE A HIGHER PRICE THAN OTHER HOTELS?...

- WHAT IS A LUXURY HOTEL? WHY DO THEY CHARGE A HIGHER PRICE THAN OTHER HOTELS? WHY DO CUSTOMERS PAY THIS HIGHER PRICE? WHAT IS YOUR EXPERIENCE OF A LUXURY HOTEL? DISCUSS WITH REAL LIFE EXAMPLES - WRITE AN ESSAY OF 250 - 300 WORDS

. WHAT IS A LUXURY HOTEL? WHY DO THEY CHARGE A HIGHER PRICE THAN OTHER HOTELS?...

. WHAT IS A LUXURY HOTEL? WHY DO THEY CHARGE A HIGHER PRICE THAN OTHER HOTELS? WHY DO CUSTOMERS PAY THIS HIGHER PRICE? WHAT IS YOUR EXPERIENCE OF A LUXURY HOTEL? DISCUSS WITH REAL LIFE EXAMPLES WRITE AN ESSAY OF 500 - 1000 IN YOUR WORDS COVERING ALL THESE QUESTIONS AND POST YOUR ANSWER DIRECTLY ON SCHOOLOGY, THANK YOU.

One measure of the value of a stock is its price to earnings ratio (or P/E...

One measure of the value of a stock is its price to earnings ratio (or P/E ratio). It is the ratio of the price of a stock per share to the earnings per share and can be thought of as the price an investor is willing to pay for $1 of earnings in a company. A stock analyst wants to know whether the P/E ratios for three industry categories differ significantly. The following data represent simple random samples of companies...

Question 19 Espanya Co. has a price-earnings ratio of 10, earnings per share of P2.20, and...

Question 19 Espanya Co. has a price-earnings ratio of 10, earnings per share of P2.20, and a payout ratio of 75%. The dividend yield is Group of answer choices 25.0% 7.5% 10.0% 22.0% Question 20 pts The following were reflected from the records of Mamita Company: EBIT P1,250,000 Interest expense 250,000 Preferred dividends 200,000 Payout ratio 40% Shares outstanding, 2020 Preferred 20,000 Common 25,000 Income tax rate 40% Price-earnings ratio 2 The dividend yield ratio is Group of answer choices...

Discussion : The Price Earnings Ratio or PE ratio is an indicator of how expensive a...

Discussion : The Price Earnings Ratio or PE ratio is an indicator of how expensive a stock is. Some investors will look to invest in stocks with a high PE ratio. Some will look to invest in stocks with a low PE Ratio.' Why do different investors select stocks with such different PE ratios? Thoughts suggestions and ideas welcome, but please make sure you support your arguments with appropriate referencing. One of the things that can be very useful is...

Hypothesize how your two buffers’ pHs will compare to each other. (Will one be higher than...

Hypothesize how your two buffers’ pHs will compare to each other. (Will one be higher than the other? If so, which one?) Explain.  One solution will need 28-32 mL of NaH2PO4 and 18-22 mL Na2HPO4.  The other will need 18-22 mL of NaH2PO4 and 28-32 mL Na2HPO4. Assume you make a buffer with 20 mL KH2PO4 and 30 mL K2HPO4. Both solutions are provided at a concentration of 0.2000 M and are made to a final volume of...

Question