Accounting: A Very Short Introduction by Christopher Nobes

Accounting: A Very Short Introduction by Christopher Nobes

Author:Christopher Nobes [Nobes, Christopher]
Language: eng
Format: epub
ISBN: 9780199684311
Publisher: Oxford University Press
Published: 2014-01-15T07:00:00+00:00


Price earnings ratio (p/e ratio)

The ratio of the share price to the earnings is often abbreviated to ‘the p/e ratio’.

This ratio compares the current market price of the company’s shares with the earnings generated. It indicates the ‘expensiveness’ of the share. Another way of looking at this ratio is that it shows the confidence level of investors. A high p/e ratio indicates a high level of confidence in the company; in other words, the market is prepared to pay a high price for a share in the company, compared to its earnings. This is because the market expects a good future for the company. Many newspapers report daily on the p/e ratios of listed companies.



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