Price-to-Earnnings Ratio Answer Key (p. 31-32)
1. 16.67
2. 7.89
3. 37.50
4. 23.03
5. 3
6. 24.25
7. 7
8. P/E ratio gives different information from dividend yield. A high P/E might be a warning that the stock is more vulnerable to decline.
9. Answers will vary. Debt load, basic business model, company leadership, and economic conditions all exert influence on the success of a company.
10. Some investors see a decline (even a minor one) in earnings as very bad news and will flee from stocks with such setbacks, especially if they are only temporary, and are rewarded for the effort.
11. This is often the case. Rising earnings make a company look more attractive to investors. As the stock price rises, dividend yield will decrease unless the dividend is raised to keep up with the increasing stock price. From this example, you can see how many of these company financial numbers are intertwined with one another.
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