This Tool is useful for estimating earning yields on stock or bond. This tool provides a Earnings Yield calculator and a Price Earnings Ratio Calculator in one! A Price Earnings Ratio is also known as P/E Ratio. With this tool you can see the P/E Ratio and the Earnings Yield of a stock.
What is Price to Earnings Ratio (P/E Ratio)
The price to earnings ratio is defined as market price per share of the companydivided by annual earnings per share of that particular company. The higher the P-E ratio means that market is ready to pay more for each dollar of company’s annual earnings. However, lowP-E ratio indicates the stock is undervalued or poor future earnings are anticipated by the investors. The estimated P-E ratio can be calculated by using the earnings forecast made by the company but the companies running in loss don’t have any P/E ratio. It is considered that average PE ratio is 15-20 times of company earnings. This is used for analyzing stock valuation of the company in market and its shares relative to income actually produced by thecompany, by comparing price and earnings per share. The P-E ratio of the stockwill be more when its forecasted earning growth is high and in case lowerearning growths are expected the P-E ratio for that stock will be low. It can be usedby both investors and company managers. Investors can use it for comparing the value of stocks and it is generally more useful in comparing of stock valuation of peer companies belong to same sector or group due to major differences in earning across different sectors. The P-E ratio of the company is the main element for managers. They make efforts to improve earnings per share in shortterm and growth rates in long run, due to the strong incentives attached with it.
How to calculate Price to Earnings Ratio (PE-Ratio)?
Price to Earnings Ratio (P/E Ratio) = Market Value Per Share
Earnings per Share (EPS)
What is Earnings Yield
The earning yield of a stock is defined as percentage of each dollarinvested in company stock earned by the company. It is calculated by dividingearnings per share of the company to its share price. It is the inverse of P/Eratio. The stock with high P/E ratio has low earnings yield and the stock withlower PE-ratio has a higher earnings yield. It can be used for comparing withother classes of assets like bonds, fixed deposits etc. this comparison helpsin selecting one of best investment opportunity available to the investors at asingle time. It is not only used forcomparing the earnings of the stock against bond yields but for whole sectorand market as well. Commonly, earnings yields associated with equities aregreater than yield of risk-free treasury bonds because of an additional risk facedin equity investment by an investor. It is useful for both investors and investmentcompany managers for assessing optimal asset allocations.
How to calculate Earnings Yield?
Earnings Yield = (EPS / Share Price) * 100