Question

Market value ratios give management an indication of what investors think of the companies and future prospects. The market value ratios include (1) Price/Earnings ratio, (2) Market/Book ratio, and (3) Enterprise Value/EBITDA ratio. The Price/Earnings (P/E) ratio shows how much investors are willing to pay per dollar of current. Its equation is:

Answer 1

Explanation:

The formula to compute the price/earning ratio is shown below:

Price-earnings ratio = (Market price per share) ÷ (Earning per share)

where,

Earning per share = (Net income - preference dividend) ÷ (Number of outstanding shares)

By dividing the market price per share by the Earning per share we can get the price earning ratio