The graph shows the stock price and the earnings per share for a numbe

Question

The graph shows the stock price and the earnings per share for a number of companies in the same sector. A company’s price-to-earnings (P/E) ratio is the ratio of the company’s stock price to the company’s earnings per share.

Based on the given information, fill in the blanks in each of the following statements.

Of the companies whose stock price is greater than $60, have a P/E ratio greater than 40.

The number of companies that have a P/E ratio less than 10 is .

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Dropdown 1: 2 Dropdown 2: 1

T4Star · Answer

1. Four companies with stock price over 60$:
A, B, C and D.
A quick check gives us companies B and C that have P/E > 40
Ans. 2

2. Only 1 company (N) seems to have P/E less than 10. (Invest in this, folks

)
Ans. 1

) Ans. 1

sgatev · Answer

Company N's stock price is less than $20 (~$16) and EPS is less than $2 (~1.8) which is certainly less than $10??

cheshire · Answer

Sorta, N is the only company with a ratio lower than 10. Using your estimates its around a 9. So the answer for Q2 is 1 as it's the only company with this low of a ratio.

Robo_123 · Answer

Bunuel  I dont think I can do this quickly. Taking long to calculate for each. How do I read this?

Bunuel · Answer

For Data Interpretation questions, you almost never need to calculate everything precisely. The key is to know  what to calculate, how to estimate, and how to ballpark quickly.

This question can easily be done in under a minute.

For the first part, we only look at companies with stock prices above $60: A, B, C, and D. We need those with P/E > 40, meaning price divided by earnings greater than 40.

D is out because its price is around 70 and its earnings are a bit above 2, giving a ratio below 40. 
 C is in because its price is around 80 and its earnings are below 2, so the ratio is above 40. 
 A is out because its price is around 90 and its earnings are about 3, giving a ratio below 40. 
 B is in because its price is around 95 and its earnings are below 2, giving a ratio above 40.

So, B and C are the answers.

For the second part, we need companies with P/E < 10, meaning  low price and relatively high earnings.

We can ignore A, B, C, and D right away since we already considered those and their P/E ratios are high. Among the remaining, only N fits, with price near 15 and earnings near 2, giving a ratio below 10.

Everything else (I, J, G, etc.) has higher price relative to earnings, so their ratios are above 10.

So, again, there is no need for exact math. Just estimate the relationship between price and earnings to spot the extremes.

Robo_123 · Answer

Awesome! Thanks

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