Question: The PE ratio usually cannot be computed when a company has negative earnings. Assume that you have a sample of 1 0 0 firms and

The PE ratio usually cannot be computed when a company has negative earnings. Assume that you have a sample of

100

firms and that

30

of these firms have negative earnings. Let

s say that you compute a market cap weighted PE ratio for the

70

firms with PE ratios and an aggregate PE ratio by dividing the total market capitalization of all firms in the sector by the total net income of all firms in the sector. Which one will yield the lower value?

The weighted average PE ratio across the money making firms

The aggregate PE ratio across all firms

Either can happen

Neither can happen

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