question archive Companies A and B have P/E ratios of 13 and 10 respectively, i
Companies A and B have P/E ratios of 13 and 10 respectively, i
Subject:BusinessPrice:2.85 Bought3
Companies A and B have P/E ratios of 13 and 10 respectively,
i. what information is contained in P/E?
II. Which firm A or B would you prefer to invest in? why?
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P/E ratio signifies price to earning ratio of a company i.e how much times is the price of the share as compared to the earning per share of that firm.
PE ratio = Market price per share / Earning per share
It also signifies the risk status and the potential status of the company i.e High PE ratio means the company is earning less per share but still the market price is trading at higher price which shows there is a risk in investing when compared with the industry PE ratio .
As given in question PE of A is 13 and PE of B is 10. IF Option is given than we should choose B company as its lower PE and for earning same amount per share you are paying less than that of A company.
