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What does the price-earnings ratio show

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Q1. What does the price/earnings (P/E) ratio show? If one firm's P/E ratio is lower than that of another, what are some factors that might explain the difference?

Q2. How is book value per share calculated? Explain how inflation and "goodwill" could cause book values to deviate from market values.

Q3. Explain how the extended, or modified, Du Pont equation and chart can be used to reveal the basic determinants of ROE.

Q4. What is the equity multiplier?

Q5. How can management use the Du Pont system to analyze ways of improving the firm's performance?

Q6. Differentiate between trend analysis and comparative ratio analysis.

Q7. Why is it useful to do comparative ratio analysis?

Q8. List several potential problems with ratio analysis.

Q9. If a firm takes steps to improve its ROE, does this mean that shareholder wealth will also increase? Explain.

Q10. What are some qualitative factors analysts should consider when evaluating a company's likely future financial performance?

Reference no: EM132550126

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