P/E Ratio - Glossary Term
The P/E ratio is an indication as of how the investing market views the health, prospects, performance and investment risk of stock exchange listed companies. By itself the P/E ratio is not a reliable absolute measure. The P/E ratio is calculated by dividing the stock or share price by the annual earnings per share over.
P/E ratios can be used to predict how long it will take for earnings from shares to cover the cost of the initial capital investment. If P/E ratio steadily increases, it is seen by the investors as high risk, because it takes longer for earnings to cover the stock price. P/E ratios are often compared over time, with other company's P/E ratios in the same market sector, and with the market as a whole, in order to establish sound investment targets.
How to calculate the P/E ratio:
1. Establish total profit after tax and interest for the past year.
2. Divide this by the number of shares issued.
3. This gives you the earnings per share.
4. Divide the price of the stock or share by the earnings per share.
5. This gives the Price/Earnings or P/E ratio.
Products and Services which relate to P/E Ratio: