earnings-price ratio

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 ?
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.
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.
[EP.sub.jt] = earnings-price ratio for firm j, period t; and
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.
The earnings-price ratio is commonly used as a measure of the real rate of return on equity.
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.
E/P: the earnings-price ratio BETA: the systematic risk computed over 150 days using the market model.
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:
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).
Inventory accounting methods and earnings-price ratios. Contemporary Accounting Research (Fall): 419-436.