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When analyzing a price-earnings ratio:_________.
a. A higher price-earnings ratio indicates pessimism because the price is too high compared to the earnings
b. The higher the price-earnings ratio, the more investors are paying for earnings.
c. A low ratio indicates that investors expect higher earnings in the future.
d. Price-earnings ratios are helpful when comparing two companies in the same industry, but not to the market in general.
e. The price-earnings ratio provides enough information to allow an investor to decide whether or not to invest in a particular stock.

Respuesta :

Answer:

B. The higher the price-earnings ratio, the more investors are paying for earnings.

Explanation:

When analyzing a price-earnings ratio the higher the price-earnings ratio, the more investors are paying for earnings.

Price-earning ratio:   It is a ratio of stock´s price per share to the company´s earning per share. It is a measure the share price in relative to the total earning by the company per share. Higher price earning ratio shows the higher demand for the share in the market. The investor wants to invest in the company´s share even if they have to pay a higher price per share as they anticipate better earning per share in the future. This ratio also helps in evaluating the performance of the company before investing.

Formula; Price-earning ratio= [tex]\frac{Current\ share\ price}{Earning\ per\ share}[/tex]

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