Tuesday, September 6, 2016

Definition of Price to Earnings (PE) Ratio

Definition:

Price to Earnings or PE ratio is the proportion or relationship, expressed as a number, between the market price of a stock and the scrip's earnings per share or EPS.

Formula:

Price to Earnings Ratio Formula

Example:
PE Ratio of SJVN Ltd.


Further Reading:

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Investing - Definition

Dictionary Meaning:
The dictionary meaning of the word 'Investing' stands: "Put (money) into financial schemes, shares, property, or a commercial venture with the expectation of achieving a profit".

 The unsaid words:
Even though the relatively longer timeframe or permanence is not visible in the formal definition, it is an inherent part of the meaning, as opposed to saving, which is well perceived as a temporary setting-aside. Therefore, unlike savings, investments need to be left undisturbed for fairly long time.

 Another unsaid element is safety - of investment or principal. What ever does not guarantee safety does not fall under the term investing. Thus highly speculative activity of trading/ day trading and margin trading in currencies, commodities and stocks do not amount to investing.

 Conclusion:
Summarising the ideas, the term investing can be broken down into the following vital components or ingredients:
  1. It is an Act of putting or placing
  2. Money
  3. Into financial instruments or property or a commercial venture
  4. For a relatively longer period of time, unlike saving, which is temporary parking
  5. With an intent to earn a gain or profit or income
  6. Activity ensures safety of sum invested

A Man Investing Money in Stocks


Whats is Not Investing:
Short term and speculative activities of trading in currencies, commodities and shares, though disguised in the respectable term of investing, clearly do not fall under the definition of investing.
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