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Quick Economics Questions

johnjohn320

Diamond Member
Jan 9, 2001
7,575
2
76
I completely forgot my book. :( Confused about only two things:

(a) What's the difference between P/E Ratio and Relative P/E Ratio?

(b) When it comes to P/E Ratios, what does "NMF" stand for/mean?
 

amdskip

Lifer
Jan 6, 2001
22,531
8
81
P/E is shorthand for the ratio of a company's share price to its per-share earnings. For example, a P/E ratio of 10 means that the company has $1 of annual, per-share earnings for every $10 in share price. Earnings by definition are after all taxes etc.

A company's P/E ratio is computed by dividing the current market price of one share of a company's stock by that company's per-share earnings. A company's per-share earnings are simply the company's after-tax profit divided by number of outstanding shares. For example, a company that earned $5M last year, with a million shares outstanding, had earnings per share of $5. If that company's stock currently sells for $50/share, it has a P/E of 10. Stated differently, at this price, investors are willing to pay $10 for every $1 of last year's earnings.

Relative P/E Ratio is the ratio of a stock's P/E to its historical high and low P/E. The historical high and low P/E's can be "all-time" values, or may be determined over the last three or five years.

If the majority have dashes or "NMF" under the price-to-earnings column, then the fund?s P/E carries a poor correlation with the true underlying risk.

Google not working for you;)
 

johnjohn320

Diamond Member
Jan 9, 2001
7,575
2
76
Originally posted by: amdskip
P/E is shorthand for the ratio of a company's share price to its per-share earnings. For example, a P/E ratio of 10 means that the company has $1 of annual, per-share earnings for every $10 in share price. Earnings by definition are after all taxes etc.

A company's P/E ratio is computed by dividing the current market price of one share of a company's stock by that company's per-share earnings. A company's per-share earnings are simply the company's after-tax profit divided by number of outstanding shares. For example, a company that earned $5M last year, with a million shares outstanding, had earnings per share of $5. If that company's stock currently sells for $50/share, it has a P/E of 10. Stated differently, at this price, investors are willing to pay $10 for every $1 of last year's earnings.

Relative P/E Ratio is the ratio of a stock's P/E to its historical high and low P/E. The historical high and low P/E's can be "all-time" values, or may be determined over the last three or five years.

If the majority have dashes or "NMF" under the price-to-earnings column, then the fund?s P/E carries a poor correlation with the true underlying risk.

Google not working for you;)
Thanks much, man, I really appreciate it.
 

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