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    Question

    What does Price /Earning Ratio denotes?

    A Price of the goods sold against the profit Correct Answer Incorrect Answer
    B Expectation about the growth in the firm’s earnings Correct Answer Incorrect Answer
    C Profitability and earning of the firm Correct Answer Incorrect Answer
    D Cost of the manufacturing Correct Answer Incorrect Answer
    E Price of the final goods produced against the cost incurred Correct Answer Incorrect Answer

    Solution

    For example, if the EPS of  X Ltd. is Rs. 100 and market price is Rs. 1000, the Price Earning ratio will be 10 (1000/100). It reflects investors’ expectation about the growth in the firm’s earnings and reasonableness of the market price of its shares. P/E Ratio vary from industy to industry and company to company in the same industry depending upon investors perception of their future.

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