earnings-price ratio

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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.
References in periodicals archive ?
Earnings-price ratios based on prices at end of quarter.
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).
Clearly, neither Campbell and Shiller's writings, nor Shiller's book, nor actual earnings-price ratios have made much of a dent in the optimism of finance professors.
Relationship of Earnings-Price Ratios to the Prospective Real Return on Equities
The basic assumption in this analysis is that the earnings-price ratio is a reasonable estimate of the forward-looking real return on equities, (13) where this is defined as the expected total return per share (dividends plus capital gains) corrected for movements in the general price level.
The conditions under which the prospective return on equity equals the earnings-price ratio are neither obvious nor obviously correct.
Variant 1 is the earnings-price ratio for the S&P 500 using quarterly earnings.
To begin with, the earnings-price ratio in the first period is equal to the ratio of the return on assets to average q:
That is, the return on equities is the rate of return on existing assets divided by average q, which is the earnings-price ratio.
8, whereas the average earnings-price ratios are [EP.
The ten-year average earnings-price ratio (EP) is used as the empirical proxy for the firm's growth opportunities.
The results show that earnings-price ratio is negatively related to the market beta and the market over book value of equityis positively related to the market beta, both indicating that firms with greater growth opportunities have a higher risk of shareholders.