hedge teaches
Out of context: Reply #22
- Started
- Last post
- 28 Responses
- nicnichols0
The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share.[2] A higher P/E ratio means that investors are paying more for each unit of income. It is a valuation ratio included in other financial ratios. The reciprocal of the PEE ratio is known as the earnings yield.[3]
The price per share (numerator) is the market price of a single share of the stock. The earnings per share (denominator) is the net income of the company for the most recent 12 month period, divided by number of shares outstanding. Most stocks trade between a 15-25 P/E ratio.[citation needed] A ratio higher than 25, must have really good earnings or risk a drop in the stock price. The P/E ratio can also be calculated by dividing the company's market capitalization by its total annual earnings.
For example, if stock A is trading at $24 and the earnings per share for the most recent 12 month period is $3, then stock A has a P/E ratio of 24/3 or 8. Put another way, the purchaser of stock A is paying $8 for every dollar of earnings. Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as Not applicable or "N/A"); sometimes, however, a negative P/E ratio may be shown.
By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a company and its shares relative to the income the company is actually generating.[citation needed] Investors can use the P/E ratio to compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment. Companies are rarely equal, however, and comparisons between industries, companies, and time periods may be misleading.- I mean.. that's just off the top of my head, I don't want to bore you with too many details...nicnichols
- http://en.wikipedia.…********
- Yup! I figured while Hedge was in the bathroom, I would use his source...nicnichols