Which of the following is a true statement?
A. The dividends-earnings ratio is a key factor that serious investors use to evaluate stock investments.
B. The price-earnings ratio for a corporation must be studied for one period only.
C. The price-earnings ratio is based on the company's dividends.
D. The price-earnings ratio for one firm may be compared to the price-earnings ratio for all firms. Reset Selection
I believe the answer is D
I believe so, too.
Yes, you are correct. The true statement is D. The price-earnings ratio for one firm may be compared to the price-earnings ratio for all firms. This is because the price-earnings ratio is a commonly used financial metric that compares the stock price of a company to its earnings per share. It is often used by investors to compare the valuation of one firm to others in the same industry or the overall market.
To determine which of the statements is true, let's take a look at each one:
A. The dividends-earnings ratio is a key factor that serious investors use to evaluate stock investments: This statement is true. The dividends-earnings ratio, also known as the dividend payout ratio, is a financial metric that measures the proportion of a company's earnings distributed as dividends to shareholders. Serious investors often consider this ratio when evaluating stock investments as it provides insights into a company's dividend policy and its ability to generate sustainable earnings.
B. The price-earnings ratio for a corporation must be studied for one period only: This statement is false. The price-earnings ratio (P/E ratio) is a valuation metric that compares the price of a company's stock to its earnings per share (EPS). It is typically calculated based on the most recent earnings, but can be studied over multiple periods to gain a better understanding of the company's performance and valuation.
C. The price-earnings ratio is based on the company's dividends: This statement is false. The price-earnings ratio is calculated by dividing the market price per share of a company's stock by its earnings per share. It is primarily used to evaluate a company's stock price relative to its earnings, not based on its dividends.
D. The price-earnings ratio for one firm may be compared to the price-earnings ratio for all firms: This statement is true. The price-earnings ratio allows for comparisons to be made between different companies in the same industry or across industries. By comparing the P/E ratios of different firms, investors can assess the relative valuation of companies and identify potential investment opportunities.
Based on the explanations provided, the true statement is D: The price-earnings ratio for one firm may be compared to the price-earnings ratio for all firms.