Syndicate
Price Earnings Ratio and Stock Market Value
In this document we are going to be analyzing the Price Earnings Ratio as a measure of value in the market index as well as that of companies. Throughout the first part of this document we will look at the Price Earnings Ratio of several stock markets and the difference that some variables have had such as the types of interest, economic growth and the main risk these have had on the Price Earnings Ratio. Later on we will get into the existing relationship between the PER of a company and its profitability over its own resources Return on Equity (ROE) and its growth. Finally we will analyze the conditions for the company to create value and the relation between creation of value and the PER.
Concretely and in this order, we will see how the PER is defined and calculated from the discount of future flow; we will analyze the PER of several stock markets such as the United States, England, Japan, Germany and Spain, and their relationship with the types of interest. We will also study some of the causes of the strong volatility we have had in the last few years. We will also see the relationship between high growth and the PER; we will analyze how a good part of the PER paid by the investors is due to the expectancies of economic growth, especially in the North American and Japanese stock markets and finally we will explain the conditions by which each company creates value and relations between the creation of value and the PER.