Earnings-price ratio

Earnings-Price Ratio

The annual earnings of a security per share at a given time divided into its price per share. It is the inverse of the more common price-earnings ratio. Often, the earnings one uses are trailing 12-month earnings, but some analysts use other forms. The earnings-price 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. It may be used in place of the price-earnings ratio if, say, there are no earnings (as one cannot divide by zero). It is also called the earnings yield or the earnings capitalization ratio.

earnings-price ratio (E/P ratio)

A measure indicating the rate at which investors will capitalize a firm's expected earnings in the coming period. This ratio is calculated by dividing the projected earnings per share by the current market price of the stock. A relatively low E/P ratio anticipates higher-than-average growth in earnings. Earnings-price ratio is the inverse of the price-earnings ratio. Also called earnings capitalization rate, earnings yield.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

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References in periodicals archive

In all cases, the stock price used in calculating the earnings-price ratio was lagged by three months from the date of the financial year end.

Predicting earnings growth using E/P ratios: Australian evidence

[EP.sub.jt] = earnings-price ratio for firm j, period t; and

The effect of ownership structure on firm performance: additional evidence

The smallest correlation is -0.357 between leverage and liquidity, and the largest is 0.313 between interest cover and the earnings-price ratio. Only five correlations have an absolute value larger than 0.3.

Empirical evidence on the corporate use of derivatives

The earnings-price ratio is commonly used as a measure of the real rate of return on equity.

The transmission channels of monetary policy: how have they changed?

Lewellen reports on the predictive power of dividend yield, book to market, and the earnings-price ratio. He shows that previous studies overstate the bias in predictive regressions and consequently understate the forecasting power of the three financial ratios.

Asset Pricing. (Bureau News)

E/P: the earnings-price ratio BETA: the systematic risk computed over 150 days using the market model.

Determinants of earnings-price ratios: a reexamination

The ten-year average earnings-price ratio (EP) is used as the empirical proxy for the firm's growth opportunities.(17) The earnings-price ratio rather than the price-earnings ratio is used in order to reduce the possible distortion in the proxy measure when the firm experiences a temporary decline in earning that is close to zero or negative.(18) The following two definitions of EP are employed:

Investment options, assets in place, and the risk of stocks

Earnings-price ratios based on prices at end of quarter.

Common stock prices and yields

Economists have suggested a whole range of variables that predict the equity premium: dividend price ratios, dividend yields, earnings-price ratios, dividend payout ratios, corporate or net issuing ratios, book-market ratios, beta premia, interest rates (in various guises), and consumption-based macroeconomic ratios (cay).

Asset Pricing

Inventory accounting methods and earnings-price ratios. Contemporary Accounting Research (Fall): 419-436.

Empirical evidence on the evolution of international earnings