CFA Practice Question

There are 201 practice questions for this study session.

CFA Practice Question

Which of the following statements is the LEAST ACCURATE with respect to the use of earnings yield (E/P)?

I. Earnings yield should increase as the P/E ratio decreases for a stock.
II. When ranking stocks in terms of valuation, E/P may be used even if earnings are negative for certain firms.
III. Earnings yield can be positive even when earnings are negative.
IV. A high earnings yield would be preferred, holding everything else constant.
Correct Answer: III

Since earnings is one of the components of the E/P ratio, a negative earnings would also imply that earnings yield is negative.

User Contributed Comments 7

User Comment
danlan2 Is II correct?
mdags Re: II => E/P maintains high-to-low rank even when comparing firms w/ negative earnings. P/E does not.
ikaneng IV: why would it be preferred?
JimM ikaneng -- high earnings yield is preferred because you get more bang for your investment dollar, a bigger claim on earnings.
Tony1234 E/P is the inverse of P/E. low P/Es are a sign of a stock being relatively undervalued. therefore a High E/P is also a sign of a stock being relatively undervalued.
past1sttime 1 should be false if earnings r negative earnings yield will not increase and the pe ratio will decrease
oregan you should assume they are all positive by default.
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