Price/Earnings Ratio Model (P/E)
The P/E looks at the relationship between the stock price and the company’s earnings. The P/E is the most popular metric of stock analysis. A valuation ratio of a company's current share price compared to its per-share earnings. For example, if a company is currently trading at $60 a share and earnings over the last 12 months were $2 per share, the P/E ratio for the stock would be 30 ($60/$2). The earnings multiplier can be computed as follows: P/E Ratio = Current Market Price of Shares / Expected 12-months Earnings per share However, the infinite period dividend discount model (DDM) can be used to indicate the variables that should determine the value of the P/E ratio as follows: Po=Do1+gre-g=D1re-g

If we divide both sides of the equation (earning per share), the result is: PoEPSo=DoEPSo1+gke-g
Thus earnings multiplier can be ultimately simplified as:
PoEPSo=PayoutRatio1+gke-g
This model implies that P/E ratio is determined by:
* The expected dividend payout ratio (dividends divided by earnings) * The estimated required rate of return on the stock (k ) * The expected growth rate of dividends for the stock (g)

Given the above formulas and information, we can now calculate the P/E ratio for Vingroup: Table 1: P/E Ratio forecast
| Current (9 mounths 2012)| 2013|
Growth rate| | 0.08|
Net Earning after tax| VND 1,352,077,007,504.00| |
Weight Average of Ordinary Shares| 645,358,358.00| |
EPS0| VND 2,095.08| VND 2,262.69|
P0 (14/12/2012)| VND 76,000.00| |
P/E| 36.27547465| |
| | |
PE Price | VND 82,080.00| |

Our computed P/E ratio of 36.275 suggests that investors are willing to give up 36.275VND for every 1VND of earnings that the company generates. In evaluating Vingroup’s P/E ratio to determine whether it is over / underpriced, we will compare the P / E ratio of Vingroup with the others in the same industry, if the P / E ratio of a company is higher than average,...

...Price / EarningsRatio
Q1: (Introductory) What three alternative measures of the price-earningsratio (P/E ratio) are described in this article?
Answer: Following are three price-earningsratio described in the article:
1. P/E ratio
2. “Forward” P/E ratio
3. “Trailing” P/E ration
Q2: (Advanced) Which of the three measures matches the definition of the P/E ratio given in your textbook? Explain your answer.
Answer: Books has only discuss the simple P/E ratio, PE ratio measures how much investor willing to pay per dollar of current earnings, higher PEs are often taken to mean that firm has significant prospects for future growth.
Price per Share
PE Ratio = _____________________
Earnings per Share
Generally similar firms have similar PE ratios, like technology companies may have similar PE ratio compare to utility, because technology more opportunity to fast growth with some risk where utility companies may be slow growth with very low risk.
Q3: (Introductory) What weakness in the simple P/E ratio is overcome by using the “forward” P/E ratio? What problems arise with the forward measurement?
Answer: “Forward” P/E...

...CFA Institute
What Determines Price-EarningsRatios? Author(s): William Beaver and Dale Morse Source: Financial Analysts Journal, Vol. 34, No. 4 (Jul. - Aug., 1978), pp. 65-76 Published by: CFA Institute Stable URL: http://www.jstor.org/stable/4478160 Accessed: 12/06/2010 17:20
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...owner:
a. Indicate whether or not you would purchase the stock of this company at a current market price of $24 per share.
b. Justify your decision using at least three reasons that are based upon the ratios you calculated.
A) No, I would not buy stock at a market price of $24 per share because:
B) 1. The book value per share of common stock has declined from Year 10, 3.43 to Year 11, 3.30. It illustrates how much money each stockholder would get if the company were to liquidate its assets. At a marker price of $24 per share, getting merely $3.30 per share would not recover a shareholder’s investment. It will take a long time for the prospective owner to get back its investment. This is a weakness of the company.
2. The price/ earningsratio is 94.22. It is a very high ratio considering we have low earnings per share. The price/ earnings per share compare the market prices with the actual earnings per share. At a market price of $24 per share, the price/ earningsratio would be 218.18. It would cost 218 times what each share of stock is actually earning in a year. Investing $24 per share to earn 0.11 cents would not be a good investment. It will take a while to get back its investment, if ever.
3. The...

...Price-to-earningsratio (P/E) is often used for assessing the company’s stock price. P/E is determined by first calculating the earnings per shares (EPS), which is the post-tax profits divides by the number of shares (Figure 1). Trailing P/E is equal to current market share price divided by trailing earnings per share for the past 12 months, whereas forward P/E is equal to current shareprice divided by expected earnings per shares for the next 12 months or next full-year fiscal period (http://www.investopedia.com assessed on 18/08/2012)
Earnings per shares (EPS) = (Post-tax profits)/(Number of shares)
Trailing P/E = (Current share price)/(Trailing earnings per shares for the past 12 months)
Forward P/E = (Current share price)/(Expected earnings per shares)
Figure 1: Calculation for P/E ratio and EPS.
The limitation of P/E ratio is that it does not indicate the growth prospects of the company’s EPS. If the P/E ratio is low for a company, then its stock price is undervalued. If the company has a high P/E ratio and is growing quickly, then the growth in EPS will eventually lower the P/E ratio. However, if the company has a high P/E ratio and is not...

...Journal of Business Finance & Accounting, 33(7) & (8), 1063–1086, September/October 2006, 0306-686X doi: 10.1111/j.1468-5957.2006.00621.x
The Long-Term Price-EarningsRatio
Keith Anderson and Chris Brooks∗
Abstract: The price-earnings effect has been thoroughly documented and is the subject of numerous academic studies. However, in existing research it has almost exclusively been calculated on the basis of the previous year’s earnings. We show that the power of the effect has until now been seriously underestimated due to taking too short-term a view of earnings. Looking at all UK companies since 1975, using the traditional P/E ratio we find the difference in average annual returns between the value and glamour deciles to be 6%. This is similar to other authors’ findings. We are able to almost double the value premium by calculating the P/E ratio using earnings averaged over the previous eight years. Keywords: price-earningsratio, value premium, arbitrage trading rule, UK stock returns, contrarian investment
1. INTRODUCTION
The ratios of a stock’s current price to its earnings over the last company year (historical P/E) and to analysts’ consensus forecast earnings for this year (prospective P/E) are widely quoted statistics....

... Investor ratios
P/E ratio
NML’s Priceearnings trend has been moving upwards in the 4 years 2011-2014. It has increased to 7.14 times in 2014 from 3.65 in 2011. This is an increase of 3.49 in 4 years. NML’s earning per share in 2013 and 2014 were Rs.16.63 and Rs.15.6 respectively. NML’s major earnings is derived from export business. It has maintained steady earnings per share over the years as a result of persistent profitability and it speaks well of its management proficiency (Annual Report, Director’s report, 2014).
NML announced earnings of Rs.5.51 billion in Fiscal year 2014, which were lower by 5.7% as compared to last year’s earnings of Rs.5.85 billion http://www.brecorder.com/cotton-a-textiles/185:pakistan/1226960:nishat-mills-announces-rs-551-billion-earnings-in-fiscal-year-2014/ , as is reflected in earnings per share above.
Dividend Per Share
NML has paid out cash dividends every year, which has increased steadily over the years from Rs.3.3 in 2011 to Rs.4.00 in 2014 reflecting their profitability. NML had paid out a dividend per share of Rs.3.5 even in FY 2012, when Pakistan’s textile industry had suffered greatly due to energy shortage http://paktribune.com/business/news/Textile-exports-drop-as-energy-shortages-bite-9758.html .
NML had a net increase in cash inflow of Rs.1.6 billion increasing...

...Growth: In 2008, FedEx reported revenue of $38 billion; in 2012 the company reported revenue of $42.7 billion, representing a year over year annual growth rate of 2.96%, and while this may not seem like an explosive number, the caliber of growth is solid and expected to accelerate into the future, with 2015 revenues reaching nearly $49 billion.
Established Distribution System: The company possesses a massive fleet of airplanes, trucks, locations, and employees, and is distinctly established and has the capability of transporting thousands of packages every day.
Dividend: The company currently pays out a quarterly dividend of $0.14, which annualized puts the dividend as yielding 0.62%.
Reasonable Valuation: The company carries a price to earningsratio of 14.02, which by nearly all standards is a relatively reasonable valuation.
Institutional Vote of Confidence: 78% of shares outstanding are held by institutional investors, displaying the huge amount of confidence long-term and big-money investors have in the company and its future.
Money on the Balance Sheets: The company currently has $1.176 billion in cash or cash equivalents on its balance sheet, a large cushion for times of economic downfall.
Weaknesses:
Relative Small Size: Compared to UPS, FedEx is considered a rather small company, and in an industry in which consumers have to put their trust in a company to get their product to a place on time, consumers often turn...

...Liquidity Ratios: Current Ratio = Current Assets/Current Liabilities
Efficiency Ratios Asset Turnover Ratio = Sales Revenue/ (Fixed Assets + Current Assets)
Profitability Ratios Net Profit Margin = (Net Profit x 100) /Sales Revenue
Return on Capital Employed = Net Profit (Operating Profit) x 100
(ROCE) Capital Employed
Solvency Ratios Gearing Ratio = Total Liabilities/Shareholders Equity
Investment RatiosEarnings per Share (EPS) = Net Income – Dividends on preferred stock
Average Outstanding Shares
Price/EarningsRatio (P/E) = Market Price of Share/EPS
Aviation Industry Specific Ratios…
Available Seat Miles = Total No. of Seats Available for Transporting Passengers
(ASM) x No. of Miles Flown during Period
Revenue Passenger Mile = No. of Revenue Paying Passengers x
(RPM) No. of Miles Flown During Period
Load Factor
Quick/Acid Test Ratio = Current Assets less Stock/Current Liabilities
Dividend Yield = Annual Dividends per Share
Price per Share
Liquidity...