Page 20 - FINANCE PART 2 - 7. Analysis And Interpretation Of Financial And Non-financial Information

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

20