Imagine that stock in Company XYZ is selling for $50 per share. There are a million shares of stock, and Company XYZ made $2 million in profits last year. What is its P/E ratio?
a. 1
b. 10
c. 20
d. 25
e. 50
Earnings per share = Net income / number of shares outstanding
Earnings per share = $2,000,000 / 1,000,000 = $2 per share
P / E ratio = Market price per share / Earnings per share
P/E ratio = $50 / $2
P/E ratio = 25 times
Imagine that stock in Company XYZ is selling for $50 per share. There are a million...
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