Price / revenue (P / E) ratio is another measure of particular interest for investors in public works. The P / E ratio provides you with an idea how much you are paying for the current price of the stock for each dollar of revenue. Profit underpins the book value of the shares reported on the balance sheet, not the market value of the shares of the stock.
The P / E ratio is a reality check on how high the current market price is in relation to the underlying profit the business is acquiring. A very high P / E ratio is justified only if the investor thinks that the company's earnings per share (EPS) has a lot of potential upside in the future.
The P / E ratio is calculated by dividing the current market price of the stock at the end of the latest 12-month diluted EPS. The stock price bounces around the day a day and makes a big change in the sudden notice It is a target. The current P / E ratio should be compared with the average stock market P / E in order to decide whether the business goes above or below the market average.
The ratio of P / E is currently high, despite the sluggishness of the stock market four years. The P / E ratio varies year by year from industry to industry. EPS dollars in dynamic business in the growth industry can have a market value of $ 10 per dollar of profit, or net income, while EPS
In summary, the price-earnings ratio or the P / E ratio is calculated as the diluted earnings per share (EPS) or the lowest P / E at the end of the 12 months if the business does not report diluted EPS There may be notice underbalued shares or pessimistic forecasts by investors. High P / E may be able to reveal overestimated stocks or it may be based on optimistic prospects by investors.
What is earnings per share?
Public enterprises must report earnings per share (EPS) under the profit and loss statement net income line. This is mandated by generally accepted accounting practices (GAAP). EPS provides investors with a means to determine the amount the business acquired in its equity investment in the stock. In other words, EPS puts investors on each stock share for the purpose of acquiring business of net income. This is calculated by dividing net profit by the total number of capital stock shares. Because it allows them to compare with the market price of their stock, the net profit of the business is important to shareholders who want to be communicated to them per share
Private companies need not report EPS as shareholders focus more on the total net income of the business.
The actual results of the public company constitute a simple capital known as an EPS diagram. EPS for complex capital structure and reporting to the public company as well. One is called basic EPS and is called other diluted EPS. Basic EPS is based on the number of outstanding shares. Diluted earnings are based on issued stocks and shares that can be issued in the future in the form of stock options.
Obviously, this is a complex process. The accountant should adjust EPS ceremonies for any number of incidents or business changes. The business may issue additional shares during this year and repurchase some of its own shares. One pool for each class of stock - or it will cause net income to be divided into two or more pools Mergers, acquisitions, or sales that also issue several classes of shares will also be included in the EPS formula It affects.
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