Accounting: A Very Short Introduction (Very Short Introductions) by Christopher Nobes

Author:Christopher Nobes
Language: eng
Format: mobi
Publisher: Oxford University Press, USA
Published: 2014-02-24T00:00:00+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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