Price Earnings Ratio
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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 you 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.
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Solution Summary
The solution explains what is the expected price to earnings ratio of some companies.
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a. High-risk companies
Distribute low proportion of current earnings since these would try to conserve cash. High risk companies would have low P/E to compensate for higher risk.
b. Companies that have recently ...
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