Respuesta :
Answer:
Since the Lower deck's price-earnings ratio of 9.5 is higher than Topp Company’s price-earnings ratio of 6.05, the market therefore have higher expectations of future performance of Lower deck.
Explanation:
Price-earnings ratio refers to the ratio of the market price per share (MPS) to the earning per share (EPS) of a company.
Topp Company’s price-earnings ratio can therefore, be computed using the following formula:
Topp Company’s price-earnings ratio = MPS / EPS ........... (1)
Where;
MPS = Common stock market value = $29.04
EPS = $4.80
Substituting into equation (1), we have:
Topp Company’s price-earnings ratio = $29.04 / $4.80 = 6.05
It should be noted that companies that have a high Price Earnings Ratio are usually referred as growth stocks. The implication of this is that there is a positive future performance which makes investors to have higher expectations for future earnings growth. As a result, the investors are ready to pay more for the stock of the firms.
Since the Lower deck's price-earnings ratio of 9.5 is higher than Topp Company’s price-earnings ratio of 6.05, the market therefore have higher expectations of future performance of Lower deck.
Topp Company’s price-earnings ratio is 6.05.
The company that has a higher expectations of future performance is Lower deck.
PE ratio is known as the price per earnings ratio. It the ratio of the price of the shares of a company to its earnings per share. The higher the PE ratio, the higher the prospects of higher future performance.
Topp Company’s price-earnings ratio = $29.04 / $4.80 = 6.05
Lower deck has a higher PE ratio compared with Topp Company’s price-earnings ratio, so it has a higher expectations of future performance.
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