Which measure expresses a company's price relative to its earnings?

• A. Earnings per share (EPS)
• B. Return on assets (ROA)
• C. Quick ratio
• D. Price to earnings (P/E)

Answer: (D)

The price-to-earnings ratio expresses a company's price relative to its earnings. It is calculated by dividing the market price per share by the earnings per share, showing how many dollars investors are willing to pay for each dollar of earnings. This multiple reflects market expectations for future growth and the level of risk associated with the company. A higher P/E suggests investors expect stronger growth or are accepting higher risk, while a lower P/E may indicate slower growth or undervaluation.

Earnings per share focuses on how much profit is attributed to each share, not the share price itself. Return on assets measures how efficiently a company uses its assets to generate earnings, unrelated to current stock price. The quick ratio assesses liquidity by comparing readily available assets to near-term liabilities, also not tied to price relative to earnings.