Question

In: Accounting

Explain how to calculate the price-earnings ratio and describe how it is used in analysis of...

Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a company's financial condition and performance.

Solutions

Expert Solution

CALCULATION OF PE RATIO = Price Per shares / Earning per shares
Let assume the Earning per share is $ 10 Per Shares and market price is $ 50
Year 20XX
PE Ratio =
Market Price Per shares = $                       50.00
Divide By "/" By
Earning Per shares =                           10.00
PE Ratio = $                         5.00

As per the above example and formula we know that Price - Earning ratio is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share. In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

the price-to-earnings ratio (P/E) is one of the most common stock analysis tools used by investors...
the price-to-earnings ratio (P/E) is one of the most common stock analysis tools used by investors and analysts for determining stock valuation. In addition to demonstrating whether a company’s stock is over- or under-valued, what else can P/E tell us?
Describe how ratio analysis can be used to improve operations and reduce debt ? Describe how...
Describe how ratio analysis can be used to improve operations and reduce debt ? Describe how identifying trends and patterns in financial statements over reporting periods can yield insights into the client’s business ?
Discussion : The Price Earnings Ratio or PE ratio is an indicator of how expensive a...
Discussion : The Price Earnings Ratio or PE ratio is an indicator of how expensive a stock is. Some investors will look to invest in stocks with a high PE ratio. Some will look to invest in stocks with a low PE Ratio.' Why do different investors select stocks with such different PE ratios? Thoughts suggestions and ideas welcome, but please make sure you support your arguments with appropriate referencing. One of the things that can be very useful is...
3. Explain how ratio analysis is used to analyze financial performance.
3. Explain how ratio analysis is used to analyze financial performance.
Explain how in an imperfect capital market where there is risk, that a low price-earnings ratio...
Explain how in an imperfect capital market where there is risk, that a low price-earnings ratio strategy may be able to generate excess market returns. Use relevant asset pricing models.
Explain how in an imperfect capital market where there is risk, that a low price-earnings ratio...
Explain how in an imperfect capital market where there is risk, that a low price-earnings ratio strategy may be able to generate excess market returns. Please discuss the asset pricing models we have covered in answering the question.
Compute amazon Profitability and Price/earnings/ ratio. Please explain what the ratio means, why the ratio is...
Compute amazon Profitability and Price/earnings/ ratio. Please explain what the ratio means, why the ratio is important, and relate the result to some context that makes it meaningful (competition, industry, year over year)
List explain and show how to calculate two specific ratio measures that could be used to...
List explain and show how to calculate two specific ratio measures that could be used to measure a banks credit risk. In each case explain whether an analyst would want a higher or low ratio than the ratios of the banks peer group and why
Profitability Ratios, Im having understanding the price to earnings ratio, Can you explain the Price to...
Profitability Ratios, Im having understanding the price to earnings ratio, Can you explain the Price to earnings Ratio? What does it mean when the price to earnings ratio is 10? What does it mean that a company is overvalued or undervalued and how do you determine that?
Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the...
Explain the use of return on assets (ROA) and the price-to-earnings (PE) ratio in evaluating the performance of a company. How do you calculate ROA and PE ratio and how can market conditions affect these metrics?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT