Price Earnings Ratio (PER) and Company Earning Power
The price earnings ratio (PER) generally applies to companies – shares – in particular and to a lesser extent to the stock-exchange indexes. In this part we will try to explain in what measure the behavior of the companies influences in its market PER.
We will advance that the variables of the company that influence in its PER are the return on equity (ROE), the growth of the dividends, and the earning power the investors ask from the share in concrete. But in order to get to this conclusion it is necessary to go over somewhat of a torturous path that we will try to go over here. As we explain this we will take advantage to review some of the basic equations that are used in the company valuation.
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