A ratio that divides market value (price) per share by earnings per share (EPS) is called:

• A. Earnings Yield
• B. Dividend Yield
• C. Return on Equity (ROE)
• D. Price-Earnings (P/E) Ratio

Answer: (D)

Verified step by step guidance

1. Understand the concept of the Price-Earnings (P/E) Ratio: It is a financial metric used to evaluate the relative value of a company's shares by comparing its market price per share to its earnings per share (EPS).
2. Recognize the formula for the P/E Ratio: \( \text{P/E Ratio} = \frac{\text{Market Price per Share}}{\text{Earnings per Share (EPS)}} \). This formula divides the market value of a share by the company's earnings per share.
3. Identify the components: The market price per share is the current trading price of a single share of the company's stock, and the EPS is the portion of a company's profit allocated to each outstanding share of common stock.
4. Compare the P/E Ratio to other financial metrics: Unlike Earnings Yield, Dividend Yield, or Return on Equity (ROE), the P/E Ratio specifically focuses on the relationship between market price and earnings, making it a key indicator of investor sentiment and valuation.
5. Apply the concept: When solving problems related to the P/E Ratio, ensure you have the market price per share and EPS values. Plug these values into the formula to calculate the ratio, but remember that the problem here is conceptual, so no calculation is required.