Posted on : August 28, 2016
Views : 129
Category : Finance
The price-to-earnings ratio, or P/E ratio, is an equity valuation multiple. It is defined as market price per share divided by annual earnings per share. There are multiple versions of the P/E ratio, depending on whether earnings are projected or realized, and the type of earnings.
  • “Trailing P/E” uses net income for the most recent 12-month period, divided by the weighted average number of common shares in issue during the period. This is the most common meaning of “P/E” if no other qualifier is specified. Monthly earnings data for individual companies are not available, and in any case usually fluctuate seasonally, so the previous four quarterly earnings reports are used and earnings per shareare updated quarterly. Note, each company chooses its own financial year so the timing of updates varies from one to another.
  • “Trailing P/E from continued operations” uses operating earnings, which exclude earnings from discontinued operations, extraordinary items (e.g. one-off windfalls and write-downs), and accounting changes.
  • “Forward P/E”: Instead of net income, this uses estimated net earnings over next 12 months. Estimates are typically derived as the mean of those published by a select group of analysts (selection criteria are rarely cited).
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