PFM7 - P/E and PEG Ratios

What does the P/E ratio represent?

• Company's market capitalization divided by total revenue

• Company's stock price divided by earnings per share

• Net income divided by total assets

• Current share price minus dividends paid

What does a high P/E ratio typically indicate?

• The company is undervalued

• Investors expect high future growth

• The company has high debt

• Low profitability

What is a limitation of the P/E ratio?

• It includes non-operating income

• It cannot be calculated for companies with no earnings

• It ignores market trends

• It is only based on historical data

What does a lower forward P/E ratio compared to the current P/E ratio imply?

• Expected earnings decrease

• Analysts expect earnings to increase

• Stock overvaluation

• Lower dividend payouts

Which of the following is NOT a type of P/E ratio?

• Trailing P/E

• Forward P/E

• Comparable P/E

• Relative P/E

What does the PEG ratio account for that the P/E ratio does not?

• Dividend yield

• Earnings growth

• Market capitalization

• Revenue growth

A PEG ratio lower than 1.0 generally indicates:

• The stock is overvalued

• High risk and volatility

• The stock is undervalued

• Low earnings growth

What is a common issue with calculating the PEG ratio?

• It cannot use forward-looking data

• Requires accurate growth rate assumptions

• Ignores historical data

• Only applies to large-cap stocks

What growth rate is typically used in the PEG ratio calculation?

• One-year historical growth rate

• Five-year expected growth rate

• Dividend growth rate

• Market growth rate

What could result in an inaccurate PEG ratio?

• Using market data

• Comparing to industry benchmarks

• Using historical growth rates that differ from future expectations

• Including tangible assets