# price-earnings ratio

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## Price-earnings ratio

Shows the multiple of earnings at which a stock sells. Determined by dividing current stock price by current earnings per share (adjusted for stock splits). Earnings per share for the P/E ratio are determined by dividing earnings for past 12 months by the number of common shares outstanding. Higher multiple means investors have higher expectations for future growth, and have bid up the stock's price.

## Price-Earnings Ratio

The price of a security per share at a given time divided by its annual earnings per share. Often, the earnings used are trailing 12 month earnings, but some analysts use other forms. The P/E ratio is a way to help determine a security's stock valuation, that is, the fair value of a stock in a perfect market. It is also a measure of expected, but not realized, growth. Companies expected to announce higher earnings usually have a higher P/E ratio, while companies expected to announce lower earnings usually have a lower P/E ratio. See also: PEG

## price-earnings ratio (P/E ratio)

A common stock analysis statistic in which the current price of a stock is divided by the current (or sometimes the projected) earnings per share of the issuing firm. As a rule, a relatively high price-earnings ratio is an indication that investors believe the firm's earnings are likely to grow. Price-earnings ratios vary significantly among companies, among industries, and over time. One of the important influences on this ratio is long-term interest rates. In general, relatively high rates result in low price-earnings ratios; low interest rates result in high price-earnings ratios. Also called earnings multiple, market multiple, multiple, P/E ratio. See also forward P/E, trailing P/E.

## price-earnings ratio

a ratio used to appraise a quoted public company's profit performance, which expresses the market PRICE of the company's SHARES as a multiple of its PROFIT. For example, if a company's profit amounted to £1 per share and the price of its shares was £10 each on the STOCK MARKET; then its price-earnings ratio would be 10:1. Where a company's prospects are considered by the stock market to be good, then it is likely that the company's share price will rise, producing a higher price-earnings ratio. Price-earnings ratio is the mirror image of EARNINGS YIELD. See EARNINGS PER SHARE.

## price-earnings ratio

a ratio used to appraise a quoted public company's profit performance that expresses the market PRICE of the company's SHARES as a multiple of its PROFIT. For example, if a company's profit amounted to £1 per share and the price of its shares was £10 each on the STOCK EXCHANGE, then its price-earnings ratio would be 10:1. Where a company's prospects are considered by the stock exchange to be good, then it is likely that the company's share price will rise, producing a higher price-earnings ratio. The price-earnings ratio is the mirror image of EARNINGS YIELD. See EARNINGS PER SHARE.
References in periodicals archive ?
Background studies by Beaver and Morse (1978) and Zarowin (1990) conclude that indeed there are variables other than earnings growth potential and investment risk that explain differences in price earnings ratios.
The study concluded that "quality of earnings" did significantly explain an incremental portion of the unexplained variance in price earnings ratios after considering the effects of the traditional variables, protected EPS growth, and investment risk.
As can be seen, the sample firms had price earnings ratios with a mean of about 18 and a standard deviation of about 8 and corporate reputation ratings with a mean of 6.
This result indicates that a positive corporate reputation rating can lead to higher price earnings ratios even after controlling for future earnings per share growth, Beta, and accounting method choices.
For example, a higher corporate reputation rating leads to higher price earnings ratios with the other factors held constant.
70 Where: PE = Price Earnings Ratios EPSGR = Projected five-year EPS growth rate BETA = Financing risk QE = Cash flow from operations 2 net income REP = Overall Fortune 500 corporate reputation rating TABLE TWO: REGRESSION MODEL RESULTS Model Variable Predicted Sign Coefficient (Prob > F) Intercept ?
The price earnings ratio has long been used as an investment analyst's tool to assess earnings growth potential and investment risks.

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