Learn what the price/earnings ratio really means and how you should use it to value companies.

Price to equity ratio

The price-to-book ratio, or P/B ratio, is a financial ratio used to compare a company's current market price to its book value. The calculation can be performed in two ways, but the result should be the same each way. In the first way, the company's market capitalization can be divided by the company's total book value from its balance sheet. The second way, using per-share values, is to divide the company's current share price by the book value per share (i.e. its book value divided by the number of outstanding shares).

As with most ratios, it varies a fair amount by industry. Industries that require more infrastructure capital (for each dollar of profit) will usually trade at P/B ratios much lower than, for example, consulting firms. P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values. A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm to generate profits or cash for shareholders.

This ratio also gives some idea of whether an investor is paying too much for what would be left if the company went bankrupt immediately. For companies in distress, the book value is usually calculated without the intangible assets that would have no resale value. In such cases, P/B should also be calculated on a "diluted" basis, because stock options may well vest on sale of the company or change of control or firing of management.

It is also known as the market-to-book ratio and the price-to-equity ratio (which should not be confused with the price-to-earnings ratio), and its inverse is called the book-to-market ratio.

This is an excerpt from the article Price to equity ratio from the Wikipedia free encyclopedia. A list of authors is available at Wikipedia.

As with most ratios, it varies a fair amount by industry. Industries that require more infrastructure capital (for each dollar of profit) will usually trade at P/B ratios much lower than, for example, consulting firms. P/B ratios are commonly used to compare banks, because most assets and liabilities of banks are constantly valued at market values. A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal (and/or that the market value of the firm's assets is significantly higher than their accounting value). P/B ratios do not, however, directly provide any information on the ability of the firm to generate profits or cash for shareholders.

This ratio also gives some idea of whether an investor is paying too much for what would be left if the company went bankrupt immediately. For companies in distress, the book value is usually calculated without the intangible assets that would have no resale value. In such cases, P/B should also be calculated on a "diluted" basis, because stock options may well vest on sale of the company or change of control or firing of management.

It is also known as the market-to-book ratio and the price-to-equity ratio (which should not be confused with the price-to-earnings ratio), and its inverse is called the book-to-market ratio.

This is an excerpt from the article Price to equity ratio from the Wikipedia free encyclopedia. A list of authors is available at Wikipedia.

The article Price to equity ratio at en.wikipedia.org was accessed 10 times in the last 30 days. (as of: 12/26/2013)

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Price-Earnings Ratio (P/E Ratio) Definition | Investopedia

A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market Value per Share Earnings per Share (EPS) For ...

www.investopedia.com/terms/p/price-earningsratio.asp

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Price–earnings ratio - Wikipedia, the free encyclopedia

The price-to-earnings ratio, or P–E ratio, or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share.

en.wikipedia.org/wiki/Price%E2%80%93earnings_ratio

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P/E ratio - Wiki | The Motley Fool

The P/E ratio is defined as the market price per share of a stock divided by ... The P/E ratio (or "P/E") is the most common and widely used of valuation metrics.

wiki.fool.com/P/e_ratio

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Fool.com: The P/E Ratio [The Fool Ratio] - The Motley Fool

The Price-to-Earnings Ratio is one of the twin towers of The Fool Ratio. The P/E ratio (often simply referred to as the "P/E") shows the relationship between a ...

www.fool.com/school/theperatio.htm

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What Shiller P/E ratio says about market's top - Market Extra ...

Mar 18, 2013 ... After a record-breaking run, investors are looking for ways to determine whether it's time to sell. A valuation strategy that looks at the Shiller P/E ...

www.marketwatch.com/story/what-shiller-pe-ratio-says-about-markets-top-2013-03-18

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P/E Ratio - Investing for Beginners - About.com

The price-to-earnings ratio, or p/e ratio as it is often called, was made famous by value investor Benjamin Graham, who encouraged investors to use it as a ...

beginnersinvest.about.com/cs/valueinvesting1/a/011101a.htm

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S&P 500 PE Ratio - multpl

Price to earnings ratio, based on trailing twelve month “as reported” earnings. Current PE is estimated from latest reported earnings and current market price.

www.multpl.com/

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Stock Investing 101 - Price-to-Earnings Ratio (P/E Ratio)

The price-to-earnings ratio, or simply P/E ratio, is a often used metric in stock valuation. Also known as earnings multiple, multiple, or simply p/e (or pe). The P/ E ...

www.theoptionsguide.com/price-to-earnings-ratio.aspx

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Price/Earnings Ratio Definition from Financial Times Lexicon

PE ratio, P/E ratio or PER for short, this is a company's share price divided by its earnings per share (EPS), expressed as a number or as a multiple of EPS (P/E ...

lexicon.ft.com/term.asp?t=price%2Fearnings-ratio

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Price/Earnings Ratio - Education Center - Yahoo! Finance

THE P/E is hands down the most popular ratio among investors. It definitely has its limitations (as we'll see in a minute), but it's also easy to calculate and ...

finance.yahoo.com/education/stocks/article/101046/Price_Earnings_Ratio

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Price to equity ratio in science

P/E Ratio: Introduction | Investopedia

Next: P/E Ratio: Using The P/E Ratio - Investopedia

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P/E Ratio: Conclusion | Investopedia

Investopedia: Are you looking for more information on currency trading? Try our Forex Walkthrough, it goes from beginner to advanced. What have we learned ...

P/E Ratio: What Is It? | Investopedia

Investopedia: Are you looking for more information on currency trading? Try our Forex Walkthrough, it goes from beginner to advanced. P/E is short for the ratio ...

S&P 500 PE Ratio - multpl

Price to earnings ratio, based on trailing twelve month “as reported” earnings. Current PE is estimated from latest reported earnings and current market price.

[PDF]Price Earnings Ratio: Definition

Price Earnings Ratio: Definition. PE = Market Price per Share / Earnings per Share. ○ There are a number of variants on the basic PE ratio in use. They are ...

P/E ratio noun - definition in Business English Dictionary ...

P/E ratio noun - definition, audio pronunciation and more for P/E ratio noun: ... for price/earnings ratio or price-to-earnings ratio: a company's share price in relation ... the Cambridge Business English Dictionary © Cambridge University Press) ...

Price–earnings ratio - Wikipedia, the free encyclopedia

Robert Shiller's plot of the S&P composite real price–earnings ratio and interest ... There are multiple versions of the P–E ratio, depending on whether earnings are projected or realized, and the type of earnings. ..... Princeton University Press.

Price/Earnings Ratio Definition from Financial Times Lexicon

PE ratio, P/E ratio or PER for short, this is a company's share price divided by its ... University calculates a cyclically adjusted p/e ratio (CAPE) which is the ratio of ...

That Money Show - One Minute MBA - P/E Ratios - PBS

University of Chicago professor Marvin Zonis offers a one minute explanation of the P/E, or Price/Earnings ratio and shows us one of the best methods to ...

Books on the term Price to equity ratio

Franchise Value and the Price/earnings Ratio

This monograph develops the franchise value approach to analyzing the prospective cash flows that determine a company's price-to-earnings ratio.

Online Investing Hacks: 100 Industrial-Strength Tips & Tools

HACK#27 Of all the ratios used in stock valuation, probably none is as popular as the price/earnings ratio (sometimes known as the P/E ... The P/E ratio compares the current price of a stock to the amount of money the company has earned.

Financial Crises: Causes, Consequences, and Policy Responses

Financial Crises: Causes, Consequences, and Policy Responses provides a comprehensive overview of research into financial crises and policy lessons learned. The book covers a wide range of crises, including banking, balance of payments, and sovereign debt crises. It begins with an overview of the various types of crises and introduces a comprehensi...

Value versus Growth - An Empirical Analysis of Equity Fund ...

Table 1 Distinguishing Features of Value and Growth Investing Financial Indicators Value Investing Growth Investing Dividend Yield High Low P/BV Ratio Low High P/E Ratio Low High P/CF Ratio Low High P/Sales Ratio Low High Expected ...

Asian Financial crises: Origins, implications and solutions

IMF economists work closely with member countries on a variety of issues. Their unique perspective on country experiences and best practices on global macroeconomic issues are often shared in the form of books on diverse topics such as cross-country comparisons, capacity building, macroeconomic policy, financial integration, and globalization.

China's Equity Risk Premium

Financial articles often refer to the dividend yield or the price-earning ratio to assess the prices of assets. Both these variables ... Hence, price-earning ratios ( hereafter P/E ratio) deliver a good forecaster for dividends. For example it might ...

Strategic Management: An Integrated Approach : Theory

Debt-to-Equity Ratio The debt-to-equity ratio indicates the balance between debt and equity in a company's capital ... stock (adjusted for stock splits) and are defined as follows: Stock price (t 1) stock price (t) sum of annual dividends per share ...

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Online sources for the term

Price to equity ratio

Price to equity ratio

Price-To-Book Ratio at Investopedia

www.investopedia.com/terms/p/price-to-bookratio.asp
Trade-Profit.com: Using Price\Book Ratio

trade-profit.com/stocks/2009/08/using-pricebook-ratio/
Yahoo! Stock screener - Sorted by "Price/Book"

screen.yahoo.com/b?mc=0/&pb=0/&ps=0/&re=0/&b=1&z=pb&db=stocks&vw=1
Price/Book Filter Global P/E Screener

www.macroaxis.com/invest/ratio/Price_to_Book
Blog posts on the term

Price to equity ratio

Price to equity ratio

How unusual is a Price to Equity Ratio of 90? - Straight Dope Message Board

How unusual is a Price to equity ratio of 90? In My Humble Opinion (IMHO)

boards.straightdope.com/sdmb/showthread.php?t=693259
4 S&P 500 Solid-Yielding Stocks With Low P/E Ratio In An Uptrend - Seeking Alpha
seekingalpha.com/article/1418411-4-s-p-500-solid-yielding-stocks-with-low-p-e-ratio-in-an-uptrend

Checking the Math on Global Equity Prices, China Growth, the French Economy, and Gold | CFA Institute Annual Conference
annual.cfainstitute.org/2013/05/24/checking-the-math-on-global-equity-prices-china-growth-the-french-economy-and-gold/

Companhia Paranaense de Energia (ADR) (ELP), NRG Energy Inc (NRG), Atlantic Power Corp (AT): 3 Well Capitalized Utilities That Look Undervalued - Insider Monkey

At the end of May, utility stocks were rapidly sold off following a multi-month rally as investors took profits and sought more cyclical opportunities...

www.insidermonkey.com/blog/companhia-paranaense-de-energia-adr-elp-nrg-energy-inc-nrg-atlantic-power-corp-at-3-well-capitalized-utilities-that-look-undervalued-163334/
Not all P/E ratios are created equal - Dividend Growth Investor

My favorite companies to invest in are those that have strong competitive advantages, which allow them to have an easily distinguishable product or service. This allows companies to have pricing power.

www.dividendgrowthinvestor.com/2013/05/not-all-pe-ratios-are-created-equal.html
Amazon's price-to-earnings ratio is now 2,767. Apple's is 13 - Apple 2.0 -Fortune Tech

The discrepancy in how the market values the two companies is too big to graph FORTUNE -- The ratio of share price to annual earnings -- usually expressed as P/E or simply PE -- is the simplest and most widely used metric to gauge the relative value of a pair of companies.

tech.fortune.cnn.com/2012/11/03/amazons-price-to-earnings-ratio-is-now-2767-apples-is-13/
What is P/E Ratio? definition and meaning

Definition of P/E ratio: price/earnings ratio. The most common measure of how expensive a stock is. The P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period. The value is the same whether the calculation is done for the whole company or on a per-share basis. For example, the P/E ratio of company A with a share price of $10 and earnings per share of $2 is 5. The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings. Companies with high P/E ratios are more likely to be considered risky investments than those with low P/E ratios, since a high P/E ratio signifies high expectations. Comparing P/E ratios is most valuable for companies within the same industry. The last year's price/earnings ratio (P/E ratio) would be actual, while current year and forward year price/earnings ratio (P/E ratio) would be estimates, but in each case, the P in the equation is the current price. Companies that are not currently profitable (that is, ones which have negative earnings) don't have a P/E ratio at all. also called earnings multiple.

www.investorwords.com/3656/P_E_ratio.html
6 High-Dividend, Low P/E Value Stocks | iStockAnalyst.com
www.istockanalyst.com/finance/story/6328413/6-high-dividend-low-p-e-value-stocks

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