What is price earnings ratio, Financial Management

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What is the Price earnings (PE) ratio

PE = Market share price/EPS (no. of times)

PE ratio is the most widely quoted investors 'ratio. It demonstrates market confidence in a company by taking current market share price in relation to the most recent EPS. A high PE ratio signific good growth prospects.

PE ratios of different industries are available as published information. If EPS and PE are known, share price of a company can be established as below:

EPS x PE ratio

This is useful when valuing shares for unlisted companies, by taking an industry similar PE ratio.

 


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