Firm A has earnings-per-share of $3.00. Firm B has earnings-per-share of $2 and a price-per-share of $30. Using the Price/Earnings (P/E) ratio of firm B as a benchmark, what should be the price-per-share of firm A?

Question

Jocelynn Santiago

Business

27 December, 01:08

Firm A has earnings-per-share of $3.00. Firm B has earnings-per-share of $2 and a price-per-share of $30. Using the Price/Earnings (P/E) ratio of firm B as a benchmark, what should be the price-per-share of firm A?

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Answers (1)

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Giovanny Bowman · Answer 1

Company A's price per share is $45

Explanation:

The P/E ratio of one company can be used by investors and analysts to determine the value of another companie's stock in the industry. This is called apples-to-apples comparism.

The P/E ratio is used to value a company by comparing its share price to earnings per share.

P/E ratio = market value of shares / earnings per share

For company B

P/E ratio = 30/2 = $15

Using company B's P/E ratio as a benchmark for company A

15 = Price per share / 3

Price per share = 15*3 = $45