--%>
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 : Market share of large bank holding

    Have the large bank holding companies enhanced their market share at the cost of smaller institutions?No. A study conducted through the Federal Reserve Bank of New York reveals that the increase in the concentration of assets is primarily becaus

    		•
  • Q : How long do business cycles remain

    Normal 0 false false

  • Q : Explain non diversifiable risk and how

    Explain non diversifiable risk? How is it measured? Unless the returns of one-half the assets into a portfolio are entirely negatively correlated along with the other half-that is extremely unlikely-some risk will

    		•
  • Q : Define Bill Bill : It is a draft of

    Bill: It is a draft of proposed law represented to the Legislature for performance. (A bill has bigger legal formality and standing than a resolution.) OR An invoice, or document statement, of an amount owing for s

    		•
  • Q : Explain Administration Program Costs

    Administration Program Costs: It is the indirect cost of a program, usually a share of the costs of the administrative units serving the whole department (example, the Director's Office, Personnel, Legal, Accounting, and Business Serv

    		•
  • Q : Describe the equilibrium price and

    Assume the total demand for wheat and the net supply of wheat per month in the Kansas City grain market are as: 16_Table for wheat.png

    		•
  • Q : Explain characteristics of an efficient

    Explain characteristics of an efficient market?Market efficiency refers to the speed, ease and cost of trading securities. Within an efficient market, securities can be traded quickly, easily and at low cost. Markets lacking these qualities are

    		•
  • Q : Working capital what are the advantages

    what are the advantages and disadvantages of working capital source of finance

    		•
  • Q : Describe Form 22 Form 22 : It’s a

    Form 22: It’s a department’s request to transfer money to the Architectural Revolving Fund (example, for building enhancements), reviewed by the Department of Finance.

    		•
  • Q : Explain Administratively Established

    Administratively Established Positions: The positions authorized by the Department of Finance throughout a fiscal year that were not comprised in the Budget and are essential for workload or administrative reasons. These positions fin

    		•