A. The relationship between earnings and the company's asset base is the company's return on investment. A company with a low return on investment could have a very high P-E ratio, and vice versa. There is not necessarily any correlation between the return on investment and the P-E ratio.
B. The P-E ratio is measured as the market price of the shares divided by the diluted earnings per share. If the price of the share is many times higher than the diluted EPS of a share, the market is expecting that there will be a much greater return in the future. This is because the current earnings of the share do not support such a high value so there must be an expectation that the future will be better than the present for the company.
C. The P-E ratio is measured as the market price of the shares divided by the diluted earnings per share and expresses the relationship between the price of a share and the earnings of that share.
D. The P-E ratio is not meaningful at all when the firm has losses, and it is not even calculated.
