Business – 10.2 Analysis of published accounts – Investment ratios | e-Consult
10.2 Analysis of published accounts – Investment ratios (1 questions)
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High P/E ratio – Indicates that investors expect strong future growth, a competitive advantage, or low perceived risk. Factors that can produce a high P/E include:
- Rapid earnings growth forecasts (e.g., new product launches or market expansion).
- Perceived low risk or strong brand loyalty that justifies a premium price.
Low P/E ratio – Suggests that the market expects slower growth, higher risk, or that the stock may be undervalued. It can also result from a recent earnings spike that temporarily inflates EPS.