Decode the P/E ratio: price compared with profit: test your skills
P/E shows how many dollars investors pay for each dollar of yearly profit. Useful for comparison, never a verdict on its own. Answer each question to see the explanation; your score appears at the end.
This test checks that you can
- Calculate P/E
- Tell trailing from forward P/E
- Know the ratio’s limits
- Practice
1. P/E equals…
- Practice
2. Forward P/E uses…
- Practice
3. When does P/E not work?
- Key idea
4. Which statement best explains "Price per dollar of profit"?
- Key idea
5. Which statement best explains "Compare like with like"?
- Key idea
6. Which statement best explains "Forward means forecast"?
- Action plan
7. In the action plan, which step comes first?
- Mistake to avoid
8. Which of these is a mistake this lesson warns against?
- Mistake to avoid
9. Which of these is a mistake this lesson warns against?
A share trades at $80 with EPS of $5. What is the P/E? What price gives a P/E of 12?
Show the answer
P/E 16; $60
$80 ÷ $5 = 16. $5 × 12 = $60.
Calculate the P/E of a made-up $80 share earning $5 per share.
More tests in this bootcamp
- What is a stock? Understand ownership and risk
- Compare common and preferred shares
- Follow a stock trade from quote to exchange
- Measure company size with market capitalization
- Read dividend yield without mistaking it for a promise
- Decode the P/E ratio: price compared with profit
- Understand growth and value investing styles
- Follow an IPO from offer price to public trading
- Tell a stock split from share dilution
- Understand market rises, falls and recovery math
- Final exam: Stocks and the market