Book Value
Earnings per Share (EPS)
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.
1)P/E = Market Price of the stock/ Earnings
If Market Price is 10$ and Earnings are 2$ then P/E=5 Therefore Return is 20% So for every 5$ 1$ can be earned in 1 year.
If P/E is less Expect more Returns Good to buy
2) Price to book value Ratio :
P/B= Price/Book value
Market price is 10$ and Book value is 0.7$
P/B=10/0.7=14.3
Every 14.3$ paid for this company has 1$ as equity in this company
If Price/Book value = 5 then it has 20% safety
The less the price/book value the more the safety
Earnings per Share (EPS)
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95).
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E.
1)P/E = Market Price of the stock/ Earnings
If Market Price is 10$ and Earnings are 2$ then P/E=5 Therefore Return is 20% So for every 5$ 1$ can be earned in 1 year.
If P/E is less Expect more Returns Good to buy
2) Price to book value Ratio :
P/B= Price/Book value
Market price is 10$ and Book value is 0.7$
P/B=10/0.7=14.3
Every 14.3$ paid for this company has 1$ as equity in this company
If Price/Book value = 5 then it has 20% safety
The less the price/book value the more the safety
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