A benchmark Price-Earnings (PE) ratio can be determined using:

• A. The company's total assets divided by its total liabilities
• B. The average PE ratios of comparable companies in the same industry
• C. The company's historical dividend payout ratio
• D. The market value of equity minus book value of equity

Answer: (B)

Verified step by step guidance

1. Understand the concept of Price-Earnings (PE) ratio: The PE ratio is a valuation metric that compares a company's current share price to its earnings per share (EPS). It is often used to assess whether a stock is overvalued or undervalued relative to its earnings.
2. Recognize the purpose of a benchmark PE ratio: A benchmark PE ratio is used as a reference point to evaluate a company's PE ratio. It helps investors compare the company's valuation to industry standards or similar companies.
3. Identify the correct method for determining a benchmark PE ratio: The average PE ratios of comparable companies in the same industry is the most appropriate method. This approach ensures that the benchmark reflects industry-specific factors and market conditions.
4. Eliminate incorrect options: The company's total assets divided by its total liabilities, historical dividend payout ratio, and market value of equity minus book value of equity are not directly related to determining a benchmark PE ratio. These metrics serve other financial analysis purposes.
5. Apply the benchmark PE ratio: Once the average PE ratios of comparable companies are determined, use this benchmark to compare the company's PE ratio and assess its valuation relative to industry peers.