Skip to content

CA Final · Advanced Financial Management · Security Valuation

Which statement about the PEG ratio used in relative valuation is correct?

The PEG ratio is the price-earnings multiple divided by the expected earnings growth rate stated in percentage points. It lets analysts compare companies with different growth prospects, with a lower PEG suggesting relatively cheaper valuation.

  1. AIt is the P/E ratio divided by the expected earnings growth rate expressed in percentCorrect
  2. BIt is the P/E ratio multiplied by the dividend yield
  3. CIt is the price-to-book ratio divided by ROE
  4. DIt is the EV/EBITDA multiple divided by the debt-equity ratio

Explanation

PEG = P/E divided by expected EPS growth rate in percent. It adjusts the P/E for growth so firms with different growth can be compared. The other options are not definitions of PEG.

Did you get it right without looking?

One question tells you little. A timed set on Security Valuation shows your real accuracy, how long you take and where you lose marks.

Practise Security ValuationFree diagnostic mock

More Security Valuation questions