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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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 ?
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.
As for the first model, empirical evidence from cross-sectional regression analysis suggest that information provided by earnings-to-price ratios is of some value relevance for explaining market price returns in ASE, i.e.
The relationship between contemporaneous earnings-to-price ratios and price relatives is not statistically significant.
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.
For the bankrupt sample, we find evidence of underreaction to past errors in the 4 years prior to the bankruptcy filing; this underreaction is driven by firms with negative earnings-to-price ratios. Underreaction to past errors for the turnaround sample disappears in the year of recovery and is absent in the two subsequent years.
For the bankrupt firms, there is evidence of underreaction to past forecast errors in the 4 years prior to bankruptcy; the underreaction is driven by firms with negative earnings-to-price ratios in every year.
If the likelihood of bankruptcy is perceived to be high and bankruptcy (in the long term) is associated with negative earnings outcomes, forecast errors for bankrupt firms with negative earnings-to-price ratios (permanent earnings) should show strong underreaction.
The results are not sensitive to benchmarks that match SEOs on additional characteristics, such as earnings-to-price ratios and past returns.
* Earnings-to-price ratio: Firms that issue seasoned equity tend to have low earnings-to-price ratios for the same reasons that they have high market-to-book ratios.
The next benchmark matches on size and earnings-to-price ratios. The SEO underperformance of 39.6% is larger than that with the size and market-to-book ratio benchmark.
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.