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WorksheetsPFM7 - P/E and PEG Ratios
Total questions: 15
Worksheet time: 8mins
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
How is the P/E ratio used in valuation?
To determine a company's intrinsic value
To compare a company to its historical and industry peers
To calculate cash flow projections
To measure profitability
Why might a company not have a P/E ratio?
It has negative revenue
It has no earnings or is losing money
It has a high PEG ratio
Its stock is not publicly traded
What does a PEG ratio greater than 1.0 generally suggest?
Stock undervaluation
High profitability
Stock overvaluation
Consistent earnings growth
Which input is critical for determining the accuracy of the PEG ratio?
Dividend payout ratio
Earnings growth rate
Price-to-sales ratio
Book value per share
What is a practical limitation of the PEG ratio?
Limited application to small-cap stocks
Cannot be used for companies with high tangible assets
Relies heavily on future growth estimates
Requires knowledge of dividend history
