P/E Ratio (Price to Earnings Ratio)Knowledge Center |
24 items • 455.260 visits
Sign up for free
Welcome to the P/E Ratio center of 12manage.
Here we exchange knowledge and experiences in the field of P/E Ratio.
❗Sign up now to gain access to 12manage. It's completely free.
What is the P/E Ratio?The Price to Earnings ratio (P/E ratio) is a valuation ratio of a company's current share price compared to its per-share earnings. Discounted Cash Flow is a superior method to value a company. However sometimes investors prefer to use simpler methods. Calculation of P/E Ratio. FormulaThe P/E ratio is used for measuring market performance and can be calculated as: P/E ratio calculation: Market Value per Share : Earnings Per Share normally for a twelve month period.
Often the P/E ratio is used, because it is so easy to grasp: If you buy stock at a P/E ratio of 10, say, this means it will take 10 years for the company's earnings to add up to your original investment - 10 years before you are paid back. Example of Price to Earnings Ratio calculationTake for example a company that earned $10M last year, and had given out
1 million shares in total. Earnings per share are $10. If that company's shares
currently sell for $100 per share, it has a P/E ratio of 10. Stated differently,
at this price, investors are willing to pay $10 for every $1 of last year's
earnings. Limitations of the P/E RatioThe Price to Earnings ratio assumes that the corporation will be worth some multiple of its future earnings. This method has at least two drawbacks:
Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide Book: Ciaran Walsh - Key Management Ratios
Compare with the P/E Ratio: PEG Ratio | Market Value Added | EBIT | EBITDA | Economic Margin | Return on Equity | TSR | PRVit Return to Management Hub: Decision-making & Valuation | Finance & Investing |
|
About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
© 2024 12manage - The Executive Fast Track. V17.2 - Last updated: 17-5-2024. All names ™ of their owners.