Explain the impact of stock risk on P and E ratios

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Reference no: EM131882023

You have been told of two companies; Kondwani Financial Limited and Deal Breakers Limited. Kondwani Financial Limited has a P/E Ratio of 15 while Deal Breakers Limited has a P/E ratio of 8.

i. Explain the concept of P/E ratio (also referred to as earnings multiplier) and how P/E multiple can be used in the stock valuation process and stock price behavior.

ii. Between the two companies Kondwani and Deal Breakers, based on their P/E ratio, which company would you recommend as having a superior P/E ratio. For full marks, clearly state your assumptions justifying your choice of company.

iii. Explain the impact of stock risk on P/E ratios.

Reference no: EM131882023

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