--%>
Assignment Help - homework help

Price Earning ratio

Define the term Price Earning ratio and how it is calculated?

E

Expert

Verified

Price Earning ratio:

Price earnings ratio commonly known as P/E ratio helps in the assessment of the company’s current share price in relation to its earnings.

It is calculated as:-

1765_earning ratio.jpg

We can say MPS÷EPS of the stock of the company.

The P/E ratio can be calculated for the past year as well as for the future years. In both the situations the market price remains as the current stock price of the company. Earnings shall vary w.r.t the year – actual earnings or the projected earnings as the case may be.

Example: if the company is trading at 60$ and the earnings of the last 12 months were 2$ then per share then the P/E ratio is 30.

Interpretation:

• The ratio reflects the price being paid by the market for each rupee of reported EPS. The ratio shall measure the expectations of the market and the investors. It shall depict the performance of the firm in the industry.

• Shares which have high growth rate shall have high P/E ratio since investors are ready to pay more for them. But if the risk factor in the share increases the market price of the share gets affected adversely and so is the P/E ratio of the firm.

• From the investment point of view of the investor the ratio shall help in deciding whether:-

-To purchase the shares of the firm or
-To refrain from purchasing the shares.

   Related Questions in Finance Basics

  • Q : How do mergers influence communities

    How do mergers influence communities?While a locally controlled bank is merged into a bank headquartered elsewhere (an out-of-market merger), some of the apprehension regarding the institution's future commitment to the local community is bound

    		•
  • Q : Conditions in which warrants value high

    Under what conditions is a warrant's value high? Describe. A warrant's value would be great when the stock price, time to expiration, and/or expected stock price volatility is great.

    		•
  • Q : Define Grants Grants : It is generally

    Grants: It is generally used to explain amounts of money received by an organization for a particular purpose however with no obligation to repay (that is, in contrast to a loan, though the award might stipulate the repayment of funds under some situa

    		•
  • Q : Question based on imposesing tax Given

    Given equations describe market for widgets                         Demand: P = 10 - Q Supply: P = Q - 4

    Q : What is an Initiative Initiative : The

    Initiative: The power of electors to propose statutes or Constitutional amendments and to accept or reject them. An initiative should be limited to a single subject and be filed with the Secretary of State with the suitable number of voter signatures

    		•
  • Q : Exdplain how does continuous

    Normal 0 false false

    		•
  • Q : Assignments i want to write final state

    i want to write final state report. My state is Texas.

    		•
  • Q : Debit or credit Hi this is Shailender

    Hi this is Shailender Ojha i want to know when we receive the sales where we put the sales. in debit or credit column . could you please let me know.

    		•
  • Q : What is Appropriation Without Regard To

    What is Appropriation Without Regard To Fiscal Year (AWRTFY): The appropriation for a particular amount that is obtainable from year to year until completely expended.

    		•
  • Q : Influence of mergers on fees assessed

    What influence have mergers had on fees assessed for retail bank services? The effect is not clear. Market conditions and the level of competition often determine the cost for retail bank services.

    		•