When analyzing a company's valuation using financial ratios, which statement accurately describes the use of P/E (Price-to-Earnings),
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Question:
When analyzing a company's valuation using financial ratios, which statement accurately describes the use of P/E (Price-to-Earnings), P/B (Price-to-Book), and ( mathrm{P} / mathrm{S} ) (Price-to-Sales) ratios? ( P / E, P / B ), and ( P / S ) ratios are interchangeable and can be used interchangeably to evaluate a company's financial health and investment potential. The ( mathrm{P} / mathrm{E} ) ratio indicates the market's confidence in a company's future earnings, the ( mathrm{P} / mathrm{B} ) ratio assesses the market's valuation of a company's assets relative to its stock price, and the ( P / S ) ratio measures how efficiently a company is using its sales to generate profits. The ( mathrm{P} ) /E ratio focuses on a company's revenue generation, the ( mathrm{P} / mathrm{B} ) ratio assesses its debt levels, and the ( mathrm{P} / mathrm{S} ) ratio measures its liquidity position. The P/E ratio is primarily used to assess a company's growth potential, while the ( P / B ) ratio reflects the market's perception of a company's value, and the ( mathrm{P} / mathrm{S} ) ratio measures overall profitability. The ( P / E ) ratio is solely indicative of a company's historical earnings, while the ( mathrm{P} / mathrm{B} ) ratio assesses its debt levels, and the ( mathrm{P} / mathrm{S} ) ratio is irrelevant for investment analysis.
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