Price to earnings ratio

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Revision as of 12:21, 21 August 2013 by imported>Doug Williamson (Spacing and italics added 21/8/13)
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(PER).

The ratio of the equity value of a company to its accounting earnings (profit after tax).

The PER can be calculated either on a per-share basis or on the total equity value and total earnings, giving identical results.

Per share:

PER = Current share price ÷ Earnings per share.

On total values:

PER = Total equity value ÷ Total earnings.

For example if Company A's total equity value is $630m and its relevant earnings are $63m, the PER = $630m/$63m = 10.

In another case if comparable PERs for an unlisted Company B are 12, and its relevant earnings are $10m, the total value of Company B's equity can be estimated on this basis as 12 x $10m = $120m.

Sometimes written as P/E ratio or PE ratio.

Also known as price earnings ratio.


See also