P/E Ratio Analysis

What is the P/E ratio?

P/E ratio means Price to Earnings, which tells us how much people are ready to pay for a company’s 1 rupee of earnings per share

Formula:

Where, Earnings per share means,

If a company have 1 rupee of EPS (Earnings per share), and a P/E of 20, that means people are ready to pay 20 rupees for its 1 rupees earnings

Hence, P/E become a very important metric to analyze the market’s view towards the company

Here’s an Excel file, where we have made a detailed analysis of P/E and its importance, with different scenarios

But analyzing P/E alone doesn’t make sense, growth also plays a very important role there (As explained in Excel)

Hence, to analyze the overall effect, the PEG ratio comes into the picture

PEG = Price to Earnings / Growth

PEG ratio shows the combined effect of P/E of the company and its growth

The lower the PEG, the more the company is Investment worthy;

PEG ratio of 1 is the best thing we could get

Hence, P/E and PEG gives us so much clarity about the company’s growth and the market’s view of a company

Published by Aakash and Meet

I am Aakash Raotole I am currently doing Bcom from Dr. Patel and Rb Patel commerce college I am currently studying at finnacle investment academy Recently done distance internship with windrose capital, Pune - for a period of 14 weeks I am Meet Bhatt Completed HSC in commerce Now studying finbridge program at finnacle investment academy and Bcom externals I had completed CFA institute's investment foundation course and distance internship with Windrose capital, Pune - for a period of 14 weeks

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