Just looking for a second opinion ~ want to see if your logic is close to mine!
For each of the following four groups of companies, state whether you would expect them to distribute a relatively high or low proportion of current earnings and whether your would expect them to have a relatively high or low price-earnings ratio.
a. High-risk companies.
b. Companies that have recently experienced a temporary decline in profits.
c. Companies that expect to experience a decline in profits.
d. "Growth" companies with valuable future investment opportunities.
1. High risk company will distribute low proportion of current earning as they can require cash any time, they will have relatively high p-e ratio as high risk means high return. Therefore high return will lead to high P/E ratio.
2. Companies that have recently experienced a temporary ...
This explains the Dividend Policy under various conditions