Question

The market to book ratio and price earnings ratio indicate:__________

a) the firm's liquidity
b) the firm's ability to quickly liquidate investments and turn them into cash
c) the firm's efficiency in generating funding by selling their common stock
d) market sentiment toward the firm

Answer 1

Answer: d) market sentiment toward the firm

Step-by-step explanation:

The Price to Earnings ratio is calculated by dividing the market price of a stock by the earnings per share and the market to book ratio checks the market price to the book value of a share.

Both measures use the market price in relation to a company matric. They are therefore checking the sentiment to the company from the market in relation to certain measures of the company such as the earnings per share.