Questions: 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 Aqua-Swim, Incorporated has a higher PE ratio, so it is likely the financially stronger company. Playgrounds Galore has a lower 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.

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
Aqua-Swim, Incorporated has a higher PE ratio, so it is likely the financially stronger company.
Playgrounds Galore has a lower 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.

Transcript text: 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$ Aqua-Swim, Incorporated has a higher PE ratio, so it is likely the financially stronger company. Playgrounds Galore has a lower 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.

Solution

Solution Steps

To determine which company is financially stronger based on the PE ratio, we first calculate the PE ratio for each company by dividing the closing price by the earnings. A lower PE ratio generally indicates that a company is undervalued or has strong earnings relative to its price, suggesting financial strength.

Step 1: Calculate the PE Ratios

To determine the price-earnings (PE) ratio for each company, we use the formula:

\[ \text{PE Ratio} = \frac{\text{Closing Price}}{\text{Earnings}} \]

For Playgrounds Galore (PGLR):

\[ \text{PE Ratio}_{\text{PGLR}} = \frac{61.95}{5.59} \approx 11.08 \]

For Aqua-Swim, Incorporated (ASI):

\[ \text{PE Ratio}_{\text{ASI}} = \frac{52.50}{3.04} \approx 17.27 \]

Step 2: Determine Financial Strength

A lower PE ratio generally indicates that a company is undervalued or has strong earnings relative to its price, suggesting financial strength. Comparing the PE ratios: