Do you know, ano ang P/E ( Price Earnings Ratio)

 

Price Earnings Ratio, or yung tinatawag in short na P/E Ratio

Marahil marami nakakarinig nito, pero how much do they do how this is to be interpreted?

Ano ba formula ng Price Earnings Ratio?

 

(1) Market Value of Common Shares Divided by

(2) Earnings per Share

Simple Explanation:

(1). Market Value of Common Share –  So where can we get the Market Value of Common Shares – this can be found sa closing price ng isang shares of stock.  Normally, kinukuha itong figure as of Dec 31, year end closing price.

Question: Bakit Dec 31, kasi para comparative ang figure mo sa Earnings per share, which is also computed year-end.

(2). Earnings per Share

Formula (1) Net Income-Dividends to preferred stockholders Divided by Outstanding common shares

Interpretation: This means how profitable the company is on a per shareholder basis. So, if you are a shareholder ni Ayala, assuming you hold one share, per share it is earns P1.98 in a year.

Now, let’s compute Price Earnings Ratio ni Ayala Land Inc (ALI):

Ayala Land Inc  Closing Price (Dec 28, 2018) = P40.60

Earnings Per Share (Dec 2018)       P1.98

P/E Ratio = 20.50 times

So how to interpret this, the investor is willing to pay P20 pesos for P1 peso earning.

Note:

  • A high P/E ratio means investors can expect the better growth rate in the future by this company;
  • The average market-price earning ratio is 20 to 25 times the earnings
  • If the company has a net loss, it does not have a P/E ratio

Ayala for me is a good company to invest money with on a long term basis.

Now, P/E is being compared within the Company or with it’s competitors.  Never compare one Company’s P/E to another Company with a DIFFERENT INDUSTRY.  That is a big NO.

A BIGGER NO is that, this P/E of a certain company is never to be compared with P/E of PSEI.

There is no such thing.  If you have read this kind of narratives, please ignore as this is pure fiction.

 

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Minda Paule
 

MINDA PAULE is a Certified Public Accountant, has a Masters Degree in Business Administration (MBA), financial advisor, professor, daughter, sister, author and, soon to be an entrepreneur. She is also the founder of mindapaule.com aka Money Planner, and passionately share about the need to increase financial literacy to every Filipino citizen.

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