Question

Which of the following statements are correct?

a. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their market-to-book ratios must also be the same.
b. If Firms X and Y have the same P/E ratios, then their market-to-book ratios must also be equal.
c. If Firms X and Y have the same earnings per share and market-to-book ratio, then they must have the same price/earnings ratio.
d. If Firm X's P/E ratio exceeds that of Firm Y, then Y is likely to be less risky and/or be expected to grow at a faster rate.
e. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.

Answer 1

e. If Firms X and Y have the same net income, number of shares outstanding, and price per share, then their P/E ratios must also be the same.

Step-by-step explanation:

If two companies have same net income, same number of outstanding shares then its Earnings per share =
`(Net\ Income)/(Number\ of\ shares)` will be same.

Further the market is also same.

In that case,

P/E ratio =
`(Market\ Price)/(Earnings\ Per\ Share)` will also be same.

As both the numerator and denominator in the fraction is same.

Therefore, Statement E is correct.