Importance of p/e ratio

THANKS FOR SHARING...

thanks for sharing...

Simply saying if P/E Ratio = 20

It means to earn Re 1 we have to invest Rs. 20 in that company.

Various dimentions of PE ration are

1- No. of times payment made for per unit of earning

2- investors will recover his investment value in that much time. e.g pe ratio is 20 , that means payback period is 20 years ignoring price appreciation & dividents..

3- lower of the ration , higher the return on investment e.g pe ration20 means roi will be 1/.2= 5% & pe ration 5 then roi will be 1/.05= 20%

4- modern tecnique is Trailing eps & future eps (adjusted with growth rates)... 

Modern valuation ratio is PEG ratio,, PE ration is old story now.........

The growth rate is expressed as a percentage above 100%, and should use real growth only, to correct for inflation. E.g. if a company is growing at 30% a year, and has a P/E of 30, it would have a PEG of 1.

A lower ratio is "better" (cheaper) and a higher ratio is "worse" (expensive)

super discribed by u ..dear lokesh sir...

pe ratio simply indicates the fundamentals of the company. If a company has a pe ratio of 20 we can say that the market is ready to pay 20 times the earnings of the company(this is due to the strong fundamentals) whereas if a compay has pe ratio of 2 then it has poor fundamentals...we cannot exactly use pe ratio for checking valuation i.e under valued or over valued...