A company has net income of $ 1,150,000. It also has 155,000 weighted-average common shares outstanding and a market value per share of $ 145. The company’s price-earnings ratio is equal to:<\/p>\n\n\n\n
19.5<\/p>\n\n\n\n
13.5<\/p>\n\n\n\n
116.0<\/p>\n\n\n\n
9.75<\/p>\n\n\n\n
7.42<\/p>\n\n\n\n
The correct answer and explanation is :<\/strong><\/mark><\/p>\n\n\n\n To calculate the Price-Earnings (P\/E) Ratio<\/strong>, we use the formula:<\/p>\n\n\n\n [ Earnings per share (EPS) is calculated as:<\/p>\n\n\n\n [ Given:<\/p>\n\n\n\n [ Now, using the market value per share<\/strong> of $145:<\/p>\n\n\n\n [ Rounding to one decimal place:<\/p>\n\n\n\n [ The Price-Earnings (P\/E) Ratio<\/strong> is a key valuation metric that helps investors determine how much they are willing to pay per dollar of earnings. A high P\/E ratio generally indicates that the market has high expectations for a company’s future growth, while a lower P\/E ratio may suggest lower growth expectations or an undervalued stock.<\/p>\n\n\n\n In this case, the company\u2019s P\/E ratio of 19.5<\/strong> means that investors are willing to pay $19.50<\/strong> for every $1.00<\/strong> of the company’s earnings per share. This ratio is useful in comparing companies within the same industry to assess whether a stock is overvalued or undervalued.<\/p>\n\n\n\n Thus, based on the given data, the company’s P\/E ratio is 19.5<\/strong>, making it the correct answer.<\/p>\n","protected":false},"excerpt":{"rendered":" A company has net income of $ 1,150,000. It also has 155,000 weighted-average common shares outstanding and a market value per share of $ 145. The company’s price-earnings ratio is equal to: 19.5 13.5 116.0 9.75 7.42 The correct answer and explanation is : To calculate the Price-Earnings (P\/E) Ratio, we use the formula: [P\/E […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-203330","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/203330","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=203330"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/203330\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=203330"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=203330"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=203330"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
P\/E \\text{ Ratio} = \\frac{\\text{Market Price per Share}}{\\text{Earnings per Share (EPS)}}
]<\/p>\n\n\n\nStep 1: Compute Earnings per Share (EPS)<\/h3>\n\n\n\n
EPS = \\frac{\\text{Net Income}}{\\text{Weighted-Average Common Shares Outstanding}}
]<\/p>\n\n\n\n\n
EPS = \\frac{1,150,000}{155,000} = 7.42
]<\/p>\n\n\n\nStep 2: Compute the Price-Earnings Ratio<\/h3>\n\n\n\n
P\/E \\text{ Ratio} = \\frac{145}{7.42} = 19.54
]<\/p>\n\n\n\n
P\/E \\approx 19.5
]<\/p>\n\n\n\nCorrect Answer: 19.5<\/strong><\/h3>\n\n\n\n
\n\n\n\nExplanation:<\/h3>\n\n\n\n