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Use the data provided to calculate price-earnings (PE) ratios and determine which company is financially...

3. Use the data provided to calculate price-earnings (PE) ratios and determine which company is financially stronger.
Name and Symbol | Playgrounds Galore (PGLR) | Aqua-Swim, Incorporated (ASI)
Closing Price | $61.95 | $52.50
Earnings | $5.59 | $3.04
- Playgrounds Galore has a lower PE ratio, so it is likely the financially stronger company.
- Aqua-Swim, Incorporated has a higher PE ratio, so it is likely the financially stronger company.
- Playgrounds Galore has a higher PE ratio, so it is likely the financially stronger company.
- Aqua-Swim, Incorporated has a lower PE ratio, so it is likely the financially stronger company.

Answer

To calculate the PE ratio, use the formula: PE Ratio = Closing Price / Earnings.

  1. Playgrounds Galore (PGLR): PE Ratio = $61.95 / $5.59 ≈ 11.08
  2. Aqua-Swim, Incorporated (ASI): PE Ratio = $52.50 / $3.04 ≈ 17.27

Playgrounds Galore has a lower PE ratio (11.08) compared to Aqua-Swim, Incorporated (17.27), so it is likely the financially stronger company.

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