Question

What is the price-earnings ratio? Explain the difference between it and the dividend yield. Why is this difference important?

Answer 1

The answer is attached below

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. What is P/E Ratio: The price - to - earning satio (P/E Ratio) in cesed to measure the curreat share price of entity to its Farning pershare Formula: P/E Ratio = market value per share Earning per share PJE Rabio is used by anvestors or shareholders to compare the same company's performance and to determine whether The share price is rendervalued or overvalued. But the P/E Ratio varies from industry to industry. The P/E ratio comparison wis effective when compared with companies of same sector Comparison of P/E Ratio with Yield Dividend The P/E Ratio does not consider the potential future growth curich ús very essential for an invenis tor for taking decision on any share to buy onsell! Dividend yield shows how much company pays out as dividend in each year compare to its market price of shares

Formula Dividend yield & Dividend per share - 4100 market rate por share The differential point between dividend yield & P/E Ratio ý that when market price of share increases, the dividend yield decreases where as P/E Ratio increases It is generally observed that a fast-growing company does not pay dividond & ut retain for investment purpose. This leads to lower dividend Lield On contrary, investors generally interested in investing fast-growing shares Hence the share prices increases which leads to higher P/E Ratio, baina Importance of difference between P/E & dividend yield - The importance are, . To make investment decision. 3) Identify fast growing, frisky, stable & safe shares >) Identify the cashflows.