One of the consequences of the economic meltdown in 2008 was a free fall of the stock markets average PE ratio. A PE ratio is the price per share divided by the earnings per share. This ratio measures how much investors are willing to pay per dollar of current earnings. An analyst wants to determine if the PE ratio of firms in the footware industry are different from the overall average of 14.9 in 2010. The analysts takes a sample of seven footware industry firms.

1. a) Higher PE ratios typically mean a firm has significant prospects for future growth. When could a

   high PE ratio be misleading? (Hint: = / earnings per share)

data:

Firm	P/E Ratio
Brown Shoe Co., Inc.	20.54
Collective Brands, Inc.	9.33
Crocs, Inc.	22.63
DSW, Inc.	14.42
Nike, Inc.	18.68
Skechers USA, Inc.	9.35
Timberland Co.	14.93