Jaime Huamani 1.

The three alternatives of the price-earnings ratio (P/E ratio) described in the article are the simple ratio, forward P/E, and the trailing P/E based on the last four quarters of results. 2. From the three measures of price-earnings ratio described in the article, the only one that matches the definition from my textbook would be the Simple ratio. From the article it describes simple ratio as dividing the price of stock by one year of per-share earnings. As for the book, it states the measures the ratio of the market price per share to earnings per share. 3. The use of the forward P/E ratio is that using the average analyst estimates for future earnings which provide an indication of what the average investor is prepared to pay for future earnings. This would lead to overcome the simple ration since it only provides measurements of the market price within one year. But the problems that arise with the forward measurement are investors are willing to pay up for a stock because they had expected the earning to grow rapidly or they could have just gotten carried away by the market. In other words, the issue is the estimates for the future earning may be unrealistic. 4. The use of the trailing P/E ratio can adjust historical quarterly results by removing unusual gains and losses. This can help investors get an idea of what the business earned from operations before unusual events like plant or factory closings. Thats why the simple ratio can be overcome by the trailing ratio because the simple ratio only seeks out the price of stock divided by the year of per-share earnings of the present time. 5. That is his recommendation because deciding what to exclude can be hard, but generally items that arent likely to be repeated are left out. That is why the author describes of how investors can get an idea of what the business earned from operations before any relatively unusual events happen such as factory closings. 6. A. The principle that is being discussed in article of Insider Monkey is the forward ratio. Based from the insider monkey it describes how analysts warning that commodities market looks over-supplied resulting in less need for CAT Inc. which is describing the forward ratio because its trying to warn investors about the potential earnings in the future. As that statement would prepare an investor to pay for any future earnings from that company. The same goes for in the Wall Street Journal because the author states that the firm sees a dip in the iron ore market, which will cut into the companies in that sector and their capital expenditures.. From that given statement investors would follow the forward ratio which will lead them to be more prepared about what the future market holds for the iron ore market and what its probable earnings could be since the statement is proclaiming a vision of downfall in the companies that fall into the sector of Caterpillar.

B.

Caterpillars current P/E ratio is $9.74

C. Caterpillars current P/E ratio is computed is by taking the current market price of stock which is 82.61 and dividing it by the Earning per share (EPS) 8.48 which would lead to a total price-earning ration (P/E) of 9.74. D. The factors that caused Goldman Sachs to downgrade its forecast for Caterpillars stock is from its P/E ratio and growth rate, since GS is predicting for next year that the expectations are for a 14% long-term earnings growth. As CAT had been producing very little real cash profit of late with a merely $165 million in free cash flow over the past 12 months, versus the $5.57 billion its claimed to be earning under GAAP accounting standards. The reasons may be that commodities market looks over-supplied resulting in less need for CAT Inc.