Price to earnings ratio: Difference between revisions
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(PER). The ratio of the equity value of a company to its accounting earnings (profit after tax). | (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. | 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. | Per share: | ||
On total values: PER = Total equity value ÷ Total earnings. | |||
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. | 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. | 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''. | Sometimes written as ''P/E ratio'' or ''PE ratio''. | ||
Also known as price earnings ratio. | ''Also known as price earnings ratio.'' | ||
== See also == | == See also == | ||
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* [[Prospective]] | * [[Prospective]] | ||
* [[Ratio analysis]] | * [[Ratio analysis]] | ||
Revision as of 12:21, 21 August 2013
(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.
