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Identify two reasons for the existence of different valuations produced by the Price-Earnings
Method. Which would you use and why?
Solution
Price Earning ratio (P/E)
Gives a fair idea about potential market price of a share.It indicates expectations about the future
of a company.
PE ratio =market price per share/earning per share
It is considered as the best indicator of the on going performance of a company. The shares that
have high P/E ratio are considered as high growth shares.

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Identify two reasons for the existence of different valuations produ.pdf

  • 1. Identify two reasons for the existence of different valuations produced by the Price-Earnings Method. Which would you use and why? Solution Price Earning ratio (P/E) Gives a fair idea about potential market price of a share.It indicates expectations about the future of a company. PE ratio =market price per share/earning per share It is considered as the best indicator of the on going performance of a company. The shares that have high P/E ratio are considered as high growth shares.