P/E Ratio (2/5)

If you have an iPhone, you’ve probably seen this one on your Stocks app. On the basis of a single share, the “P” stands for “price” and the “E” stands for earnings. For a given share of a company, the price/earnings ratio effectively tells how much it will cost us to benefit $1 of said company’s income. This is a popular metric among investors, because it gives guidance about whether or not a company’s shares are valued appropriately. You might see this written alongside “TTM,” or “trailing 12 months,” which means that the “earnings” part of the measure was acquired using data from the last year. (One can also look ahead to calculate the “earnings” portion, using projected measures instead of proven ones.)

Written by Megan Pontin

Enthusiastic word-collector, avid pancake-consumer, and experienced hammock-lounger. Student at Cornell University.

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