Marks: what is a Finance decision tool 1. O ABC analysis 2. O EOQ 3. O IRR 4. O PE Ratio
Answers
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Answer:
PE Ratio is a finance decision tool because,
Investors can use the P/E ratio to determine whether a company's stock is overvalued or undervalued in relation to its earnings. The ratio serves as a gauge of what the market is prepared to pay for the company's existing activities as well as its potential for future growth.
Explanation:
ABC analysis, EOQ are working capital management tool
IRR is a investment decision tool
A company's share price and earnings per share are compared using the price-to-earnings (P/E) ratio.
A high P/E ratio could suggest that a business's stock is overpriced or that investors expect the company to grow quickly in the future.
Businesses with no earnings or losses do not have a P/E ratio since there is nothing to put in the denominator.
In actuality, trailing and forward P/E ratios are also employed.
A P/E ratio is most valuable to an analyst when it is used to compare one company to others in the same industry or over time for a single company.
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