Home » Press Releases

How to calculate PE Ratio

Posted by admin 1085 days ago (http://emailwire.com)

(EMAILWIRE.COM, June 03, 2010 ) Dallas, Tx - One of the most widely used profitability ratios by Analysts and investors to judge a company's performance is PE ratio. It is the ratio of the market price of the stock and the earnings per share (EPS).

To Subscribe to free stock alerts visit http://www.PennyStockPickAlert.com .

P/E ratio = (Market price per share/Earnings per share)
For example, if the Earnings per share of company is $100 and the stock price is $50, then
P/E ratio = $(50/100) =0.5
Remember P/E is just a ratio and has no units attached to it.
EPS is calculated by dividing the profit after tax (PAT) by the number of shares outstanding.

EPS = (PAT/Number of shares outstanding)

For example, if the PAT for a company is $100 million and the number of shares outstanding is 50 million, then
EPS = ($100/50) =2

EPS is another profitability ratio which is widely used along with P/E ratio.

P/E ratio reflects the investors' expectation about the growth in the firms' earnings. P/E ratio differs from sector to sector. For example, P/E ratio of manufacturing sector would be different from the P/E ratio of the Banking sector. Even companies in the same sector would have different P/E ratio. To judge the performance of a company an Analyst should compare the firms' P/E ratio with the industry P/E ratio and its competitors.

The P/E ratio calculated on the last four quarters' earnings is known as trailing P/E. It is also calculated on the expected future earnings of the company. Some people also use the P/E ratio to value the share of companies. For example, the P/E multiplier of a company is 15 and the company expects the next year EPS to be $20. The expected value of the stock would be: $20*15=$300.

P/E ratio can also be interpreted as the amount an investor is willing to pay for each dollar of earnings by the company. So, a high P/E ratio means that investors are expecting better earnings from the company. P/E ratio can be misleading at times and one should not base its decision on P/E ratio only. A high P/E ratio does not necessarily mean that the share prices are high but the earnings are low. EPS is depended on PAT and PAT can be manipulated to the advantage of the company. Thus it is very difficult to interpret EPS meaningfully and rely on EPS and P/E ratio as measures of performance.

ABOUT http://www.PennyStockPickAlert.com

Penny Stock Pick Alert offers stock newsletters on various hot penny stocks of the day. Our stock news alerts help investors in making the wise stock market investments. Till date thousands of our subscribers have made huge gains using our daily penny stock alerts. You can become leader in stock market by keeping track of the daily activity.

Disclaimer:
The assembled information disseminated by PennyStockPickAlert.com is for information purposes only, and is neither a solicitation to buy nor an offer to sell securities. PennyStockPickAlert.com does expect that investors will buy and sell securities based on information assembled and presented in PennyStockPickAlert.com. PLEASE always do your own due diligence, and consult your financial advisor.

PennyStockPickAlert.com
Robert Wilson
214-556-6798
info@pennystockpickalert.com

Source: EmailWire.Com