Comparing Price-Earnings Ratios
The normal price-earnings ratio of a company varies depending on expected future earnings of the company and the general price level of the stock market. On average, mature companies have lower price-earnings ratios, usually less than 20, than do emerging companies, which may be over 100. This is because of the steep growth in earnings that is characteristic of an emerging company. Instructions| a. | Visit Fortune magazine’s Internet site and select a Fortune 500 corporation. The site's address is www.fortune.com | | b. | Visit NASDAQ's home page at www.nasdaq.comClick on quotes at the top of the screen, then click flash quotes for NASDAQ 100 and select a small corporation. | | c. | Get Detailed Quotes for the companies from PCQUOTE’s Internet site at www.pcquote.comIndicate the current price of each corporation’s stock, including its high and low price for the day. (If either of the companies has a net loss for the most recent period, go back and replace it with a profitable company.) | | d. | Compare the price-earnings ratios (as shown on the Detailed Quote screen) of the two companies. Speculate as to why one company has a higher price-earnings ratio than the other. |
Internet sites are time and date sensitive. It is the purpose of these exercises to have you explore the Internet. You may need to use the Yahoo! search engine http://www.yahoo.com(or another favorite search engine) to find a company’s current Web address. |
