One, of the more closely watched ratios by investors is the price$-$earnings $(\frac{P}{E})$ ratio. By dividing price per share by earnings per share,

analysts get insight into the value the market attaches to a company's earnings. More specifically, a high $\frac{P}{?}$ E ratio $($in comparison to

companies in the same industry$)$ may suggest the stock is overpriced. Also, there is some evidence that companies with low P$/$E ratios

are underpriced and tend to outperform the market. However, the ratio can be misleading.

P$/$E ratios are sometimes misleading because the $E($earnings$)$ is subject to a number of assumptions and estimates that could result in

overstated earnings and a lower P$/$E$.$ Some analysts conduct "revenue analysis" to evaluate the quality of an earnings number.

Revenues are less subject to management estimates and all earnings must begin with revenues. These analysts also compute the price$-$

to$-$sales ratio $($PSR $=$ price per share $$ sales per share$)$ to assess whether a company is performing well compared to similar companies.

If a company has a price$-$to$-$sales ratio significantly higher than its competitors, investors may be betting on a stock that has yet to

prove itself. $[$Source: Janice Revell, "Beyond P$/$E$,"$ Fortune $($May $28,2001),$ p$.174.]$

$($b$)$ Compute the P$/$E ratio and the PSR for Tootsie Roll and Hershey for $2020($these data can be found online$).$ Assume price per share

at $\frac{12}{31}\frac{?}{2020}$ to be $$28\mathrm{.}75$ for Tootsie Roll and $$151\mathrm{.}52$ for Hershey. $($Round answers to $2$ decimal places, e$.$g$.52\mathrm{.}23.)$

December $31,2020$

P$/$E Ratio

Price to Sales

Tootsie Roll

Hershey