earnings-price ratio

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Earnings-price ratio

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
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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.
References in periodicals archive ?
Book-to-market equity ratio does not absorb the role of earnings-to-price ratio. Moreover, liquidity plays an important role in explaining stock returns.
Using the methodology suggested by Kothari, Sloan (1992), the degree of the relationship between price relatives (one plus the buy-and-hold return) and earnings-to-price ratio (earnings yield) is tested using a quarterly, yearly and intertemporal sample.
Because the earnings-to-price ratio, the reciprocal of the firm's PE, is positively correlated with the book-to-market measure used in the aforementioned studies, (5) this literature suggests also that a value premium may equally accrue to low-PEG investing.
We include three price multiples in the regression: EP, BM, and DR EP is the earnings-to-price ratio, BM is the firm's book-to-market value of equity, and DP is the ratio of dividends to price.
The correlation between ([r.sub.[DELTA]agr] - [r.sub.PEG]) and the book-to-market ratio is -0.10 and significant at the 0.05 level, while the correlation between ([r.sub.[DELTA]agr] - [r.sub.PEG]) and the earnings-to-price ratio is -0.42 and significant at the 0.01 level.
In this context, one would pick an expected yield ratio by looking at the earnings-to-price ratio of similar but publicly traded firms, an approach borrowed from relative valuation.
Size, earnings-to-price ratio, and forecast consensus capture certain aspects of a firm's information environment (e.g., supply of information, earnings persistence, and earnings predictability) and hence influence forecasting behavior.
The control variables are firm size (log of market value), book-to-market (log form), beta (estimated over the 250 days ending two days before the earnings announcement), and the earnings-to-price ratio (prior year's annual earnings per share divided by end of the prior year stock price).
The characteristics of the SEOs that are matched by the characteristic-matched benchmarks are firm size, market-to-book ratio, earnings-to-price ratio, lagged six-month return, and lagged 36-month return.
Lakonishok, Shleifer, and Vishny (1994) found that a portfolio of stocks with low book-to-market and earnings-to-price ratios can yield excess returns without additional risk.
This paper uses earnings-to-price ratios as the market's implicit forecast of future earnings changes.
This is similar to the frequent use of earnings-to-price ratios rather than price-to-earnings ratios.