earnings-price ratio

(redirected from Earnings-to-Price Ratios)

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 ?
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.
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.
it-[tau]] represents the earnings-to-price ratio (earnings yield).
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.
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.
For bankrupt firms, this underreaction persists from 4 years before through the year of bankruptcy and is driven by firms with negative earnings-to-price ratios in every year.
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 SEO sample also has higher earnings-to-price ratios.
This paper uses earnings-to-price ratios as the market's implicit forecast of future earnings changes.