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P/E RATIO

What is positive, negetive and meaning of P/E ratio 2024.

What is positive, negetive and meaning of P/E ratio 2024.

P/E ratio meaning is Price to Earning ratio.

The higher the P/E ratio of any company, the more expensive the shares will be. That means that share will not be better in terms of profits. While lower the P/E ratio, the cheaper the share. There will be more scope for profit by buying this share.

When a customer goes to the market to buy something he usually bargains at 3-4 shops. Many times the price of similar items may vary from store to store. The customer buys the goods from the shop where the price is lower.

But do we keep this in mind while buying shares?

Shares with the same profit potential can become expensive and cheap in the stock market. In such a situation, we should buy only cheap shares, so that we can make good profits.

Now how to know which share is cheap and which is expensive? PE ratio solves this problem of investors. You must have also heard about PE Ratio (P/E Ratio). We also call this Price-to-Earnings Ratio.

What is P/E Ratio?

The P/E Ratio compares a company’s current share price to its earnings per share. With P/E Ratio we can also compare the company with other companies in that sector.

The right way to calculate P/E ratio.

To calculate the Price to Earning ratio, you have to divide the earnings per share by the market price per share of the company. You can calculate Earning Per Share (EPS) by dividing the total number of shares of the company by the profit after tax (PAT). Price to Earning ratio is calculated dividing the price of the share by earning of that share per unit,  For example

the market price of a share of any company ‘X’ IS 100 and earnings per share is 10 then P/E will be 100/10= 10

what is the formula of P/E ratio?

P/E=Share price/Earnings per share

What does P/E ratio effect?

P/E RATIO

 

The higher the P/E ratio of any company, the more expensive the shares will be. That means that share will not be better in terms of profits. While lower the Price to Earning ratio, the cheaper the share. There will be more scope for profit by buying this share.

Higher Price to Earning ratio indicates that there is more demand for that share in the stock market, hence the valuation is higher.

Find out the reason:

Price to Earning Ratio also tells how many times investors are willing to pay to get the return. However, an investor should also know the reason behind the Price to Earning Ratio being higher and lower. If the Price to Earning Ratio is very low and other parameters are also giving negative signals, then it means that the condition of the company is not good. Therefore people are not buying shares and Price to Earning is low.

Also see Industry P/E Ratio:

We can also find out the Price to Earning of that industry. Industry Price to Earning is the average Price to Earning of all the companies in that industry. When the Price to Earning of a company is lower than the industry Price to Earning, it means that there is still scope for further upside in the stock of that company. At the same time, if the Price to Earning of a company is more than the industry Price to Earning, it means that the share has already been bought at a high price and there may be less scope for it to go up further.

 

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