Scribd Logo
Upload

Welcome to Scribd!

  • 14 views

    FI Nanci Alstatementanalysi S Chapter:Equi Tyanalysi S

    Uploaded by

    Soumya Ghosh
    This document discusses equity analysis and price-to-earnings (P/E) ratios. It provides calculations and interpretations of different P/E ratios: 1) A company's current P/E ratio indicates how many times earnings investors are willing to pay for each rupee of earnings. 2) High P/E ratios suggest investors have high growth expectations and are willing to pay more, but also more pressure on companies to justify valuations and higher risk. Low P/E ratios may indicate undervaluation or weak performance, but could be good investments if fundamentals are strong. 3) A justified P/E is calculated independently and should differ from the standard P/E. If the P

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content

    You might also like

    FI Nanci Alstatementanalysi S Chapter:Equi Tyanalysi S

    Uploaded by

    Soumya Ghosh
    14 views2 pages
    This document discusses equity analysis and price-to-earnings (P/E) ratios. It provides calculations and interpretations of different P/E ratios: 1) A company's current P/E ratio indicates how many times earnings investors are willing to pay for each rupee of earnings. 2) High P/E ratios suggest investors have high growth expectations and are willing to pay more, but also more pressure on companies to justify valuations and higher risk. Low P/E ratios may indicate undervaluation or weak performance, but could be good investments if fundamentals are strong. 3) A justified P/E is calculated independently and should differ from the standard P/E. If the P

    Original Description:

    Original Title

    Equity Analysis-Financial statement Analysis 16.07.21

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document discusses equity analysis and price-to-earnings (P/E) ratios. It provides calculations and interpretations of different P/E ratios: 1) A company's current P/E ratio indicates how many times earnings investors are willing to pay for each rupee of earnings. 2) High P/E ratios suggest investors have high growth expectations and are willing to pay more, but also more pressure on companies to justify valuations and higher risk. Low P/E ratios may indicate undervaluation or weak performance, but could be good investments if fundamentals are strong. 3) A justified P/E is calculated independently and should differ from the standard P/E. If the P

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    14 views2 pages

    FI Nanci Alstatementanalysi S Chapter:Equi Tyanalysi S

    Uploaded by

    Soumya Ghosh
    This document discusses equity analysis and price-to-earnings (P/E) ratios. It provides calculations and interpretations of different P/E ratios: 1) A company's current P/E ratio indicates how many times earnings investors are willing to pay for each rupee of earnings. 2) High P/E ratios suggest investors have high growth expectations and are willing to pay more, but also more pressure on companies to justify valuations and higher risk. Low P/E ratios may indicate undervaluation or weak performance, but could be good investments if fundamentals are strong. 3) A justified P/E is calculated independently and should differ from the standard P/E. If the P

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    of 2

    FI

    NANCI
    ALSTATEMENTANALYSI
    S

    CHAPTER:EQUI
    TYANALYSI
    S

    1.I
    fthecur
    rentmar
    ketpr
    iceoft
    hest
    ockofHor
    izonLt
    d.i
    sRs.
    800andt
    hecompany
    ’s
    ear
    ningspershar
    ear
    eRs.
    80.
     cal
    cul
    ateP/
    Erat
    io.

    Sol
    uti
    on

    Pr
    ice-
    to-
    ear
    ningsRat
    ioofHor
    izonLt
    d.wi
    l
    lbecal
    cul
    atedasf
    oll
    ows:

    P/
    E=800/
    80=10

    Fr
    om t
    heabov
    ecal
    cul
    ati
    on,
    iti
    sest
    imat
    edt
    hatt
    heP/
    Erat
    iooft
    hehor
    izonLt
    d.i
    sten
    t
    imes,whi
    chmeanst
    hati
    nvest
    orsar
    ewi
    l
    li
    ng t
    o payRs.
    10 f
    orev
    eryr
    upeeof
    ear
    nings.

    2.Whatdoest
    hePEr
    ati
    oindi
    cat
    e?

    Hi
    ghP/
    E

    Youmayconsi
    derpi
    cki
    ngst
    ocksofcompani
    eswi
    thhi
    ghpr
    ice-
    to-
    ear
    ningsr
    ati
    os.I
    t
    meanst
    hati
    nvest
    orshav
    ehi
    gherexpect
    ati
    onsf
    orf
    utur
    eear
    ningsgr
    owt
    handar
    e
    wi
    l
    li
    ngt
    opaymor
    efort
    hem asi
    tindi
    cat
    esaposi
    ti
    vef
    utur
    eper
    for
    mance.Howev
    er,
    t
    hedi
    sadv
    ant
    ageofhi
    ghP/
    Eist
    hatgr
    owt
    hst
    ocksar
    eof
    tenunpr
    edi
    ctabl
    e,andt
    his
    put
    sal
    otofpr
    essur
    eoncompani
    est
    odomor
    etoj
    ust
    if
    ythei
    rhi
    gherv
    aluat
    ion.
    Ther
    efor
    e,i
    nvest
    ingi
    ngr
    owt
    hst
    ockswi
    l
    lmor
    eli
    kel
    ybear
    iskyi
    nvest
    ment
    . 
     

    LowP/
    E

    St
    ocksofcompani
    eshav
    ingal
    owpr
    ice-
    to-
    ear
    ningsr
    ati
    oar
    eof
    tenconsi
    der
    edt
    obe
    under
    val
    ued.Acompanywi
    thal
    owP/
    Erat
    ioi
    susual
    l
    yani
    ndi
    cat
    ionofweakcur
    rent
    aswel
    lasf
    utur
    eper
    for
    mance.Thi
    scoul
    dpr
    ovet
    obeapoori
    nvest
    ment
    .Howev
    er,
    y
    oumustbuyt
    heshar
    esoft
    hecompanyonl
    yift
    hef
    undament
    alsar
    est
    rong.You
    mustbuyst
    ocksofunder
    val
    uedcompani
    eswi
    thst
    rongf
    undament
    alsi
    fyouseekt
    o
    makepr
    ofi
    tsov
    ersomet
    ime.
     

    Just
    if
    iedP/
    E
    Thej
    ust
    if
    iedP/
    Erat
    ioi
    scal
    cul
    atedi
    ndependent
    lyoft
    hest
    andar
    dP/
    E.I
    not
    her
    wor
    ds,t
    het
    wor
    ati
    osshoul
    dpr
    oducet
    wodi
    ff
    erentr
    esul
    ts.I
    ftheP/
    Eisl
    owert
    han
    t
    he j
    ust
    if
    ied P/
    Erat
    io,t
    hen i
    tmeans t
    hatt
    he company i
    s under
    val
    ued and
    pur
    chasi
    ngt
    hatst
    ockmayr
    esul
    tinpr
    ofi
    tsov
    ersomet
    ime.

    Negat
    iveP/
    E

    Youmayf
    indacompanyt
    hati
    slosi
    ngmoneyorwi
    thnegat
    iveear
    ningshav
    inga
    negat
    iveP/
    Erat
    io.Fori
    nst
    ance,est
    abl
    i
    shedcompani
    esmayexper
    ienceper
    iodsof
    negat
    ivecashf
    lowduet
    ofact
    orsbey
    ondt
    hei
    rcont
    rol
    . 
    Howev
    er,
    youmustnoti
    nvest
    i
    ncompani
    eswi
    thconsi
    stentnegat
    iveP/
    Erat
    iosast
    heymaygobankr
    upt
    .Youhav
    e
    compani
    esnotr
    epor
    ti
    ngEPSf
    orsomequar
    ter
    s.I
    nthi
    sway
    ,theymayav
    oidshowi
    ng
    anegat
    iveP/
    E. 

    3.Howt
    oCompar
    eCompani
    esWi
    thP/
    ERat
    ios

    Notonl
    ycany
    ouuset
    heP/
    Erat
    iot
    ohel
    pyouknowwhi
    chsect
    orsar
    eov
    erpr
    icedor
    under
    pri
    ced,
    youcanal
    socompar
    ethepr
    icesofcompani
    esi
    nthesamesect
    ors.For
    i
    nst
    ance,i
    ftwocompani
    es,ABCandXYZ,ar
    ebot
    hsel
    l
    ingf
    or$50pershar
    e,one
    mi
    ghtbef
    armor
    eexpensi
    vet
    hant
    heot
    her
    .Thi
    sdependsont
    hepr
    ofi
    tsand 
    growt
    h
    r
    ates 
    ofeachst
    ock.

    SupposeABCr
    epor
    tedear
    ningsof$10pershar
    e,andXYZr
    epor
    tedear
    ningsof$20
    pershar
    e.ABChasaP/
    Erat
    ioof5,
    whi
    l
    eXYZhasaP/
    Erat
    ioof2.
    5.

    XYZi
    sabet
    terpur
    chaseatt
    hatt
    ime,becauseoft
    hel
    owershar
    epr
    iceal
    ongwi
    th
    si
    mil
    arear
    nings.Foreachshar
    epur
    chased,
    you'
    reget
    ti
    ng$20ofear
    ningsf
    rom XYZ
    r
    athert
    han$10i
    near
    ningsf
    rom ABC.

    You might also like