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Price/Earnings Ratio, Gross Profit Margin

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A sample of 15 companies taken from the Stock Investor Pro database was used to obtain the following data on the price/earnings (P/E) ratio and the gross profit margin for each company

(See attachment for sample).

a. Determine the estimated regression equation that can be used to predict the price/earnings ratio given the gross profit margin.
b. Use the F test to determine whether the gross profit margin and the P/E ratio are related. What is your conclusion at the .05 level of significance?
c. Use the t test to determine whether the gross profit margin and the P/E ratio are related. What is your conclusion at the .05 level of significance? Is the conclusion that you reached here the same as in part (b)? Explain.
d. Did the estimated regression equation provide a good fit to the data? Explain.

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Solution Summary

The solution determines the price/earnings ratio, and the gross profit margin.

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