Price to earnings ratio: Difference between revisions
imported>Doug Williamson m (Spacing.) |
imported>Doug Williamson (Updated entry. Source ACT Glossary of terms) |
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PER = Total equity value ÷ Total earnings. | PER = Total equity value ÷ Total earnings. | ||
In another case | For example if Company A's total equity value is $630m and its relevant earnings are $63m, | ||
the PER = $630m/$63m | |||
= 10. | |||
The Price to earnings ratio reflects the market's perception of the risk and the future growth prospects of the company. | |||
PERs can also be used as a very simple estimation or comparison model, for corporate valuation. | |||
In another case, say comparable PERs for an unlisted Company B are 12, and Company B's relevant earnings are $10m. | |||
The total value of Company B's equity can be estimated on this basis as: | |||
12 x $10m | |||
= $120m. | |||
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* [[Prospective]] | * [[Prospective]] | ||
* [[Ratio analysis]] | * [[Ratio analysis]] | ||
* [[EBITDA multiple]] | |||
Revision as of 10:58, 26 November 2014
(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.
The Price to earnings ratio reflects the market's perception of the risk and the future growth prospects of the company.
PERs can also be used as a very simple estimation or comparison model, for corporate valuation.
In another case, say comparable PERs for an unlisted Company B are 12, and Company B's 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.
