Page 20 - MAC4861_2 Finance class slides part 2

Analysis and interpretation of financial and non-financial information

Investor – Price/Earnings multiple (P/E)

• What does it mean?

• Based on historical earnings and current market price
• Number of years ‘earnings’ a buyer is prepared to pay per

share (ignoring growth in the above)

• High P/E relative to market (peers)

• Positive assessment of company

• Also of management, product, market
• High expectation of future profit OR

• Market not adjusting to poor performance

• LOW P/E opposite arguments

• Future P/E, adjust profit/EPS with existing or forecast

growth

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