Question

During our first discussion we noticed that P/E and profitability ratios are not necessarily highly correlated—positively or negatively. Think carefully about this issue and discuss why that is the case. Specifically, think about the role of earning numbers, how they are generated, what their purpose is, how markets view them, other factors that impact the quality of these numbers, and other sources of information that are needed to interpret these numbers correctly.

Answer 1

Solution:

The P/E proportion inserts the idea that financial specialists "purchase income." Investors purchase future

profit, yet look to current income as a sign of future income. They are worried that

profit may not be maintained later on, and pay less for income in the event that they are not practical.

Money related articulations supply extra details that give an analysis on the "quality" of

profit as a pointer of future earnings.The P/E proportion is an element of expected income development and expected rate of return. In particular, the hypotheses foresee that P/E proportion is emphatically associated with expected development and contrarily connected with expected rate of return.The bookkeeping relations that structure the

articulations and attach line things to each other with the end goal that unsustainable profit can't be reserved

without leaving a trail.

The value income proportion equation is computed by separating the market esteem cost per share by the profit per share.The cost to income proportion shows the normal cost of an offer in light of its earnings.A organization with a lower proportion, then again, is generally a sign of poor present and future execution. This could turn out to be a poor venture.

Productivity is evaluated in respect to expenses and costs, and it is examined in contrast with resources for perceive how compelling an organization is in conveying advantages for create deals and in the long run benefits.