What is PE Ratio?
The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a fellowship that measures its electrical current portion cost relative to its per-share earnings. For example, suppose that a fellowship is currently trading at Rs. 100 a portion together with its earnings over the concluding 12 months were Rs. v per share. The P/E ratio for the stock could together with so endure calculated equally Rs.100/Rs.5, or Rs. 20. EPS is virtually oftentimes derived from the amount of concluding 4 quarters. While EPS of a fellowship remains the same for a quarter or a year, the stock marketplace cost changes everyday together with thus the PE ratio equally good changes.
What dissimilar PE slabs denote?
N/A : A fellowship alongside no earnings has an undefined P/E ratio. By convention, companies alongside losses (negative earnings) are commonly treated equally having an undefined P/E ratio, fifty-fifty though a negative P/E ratio tin post away endure mathematically determined.
0–10 : Either the stock is undervalued, or the company's earnings are idea to endure inwards decline. Alternatively, electrical current earnings may endure substantially higher upwards historic trends or the fellowship may accept profited from selling assets.
10–17 : For many companies a P/E ratio inwards this arrive at may endure considered fair value.
17–25 : Either the stock is overvalued or the company's earnings accept increased since the concluding earnings figure was published. The stock may equally good endure a growth stock alongside earnings expected to increment substantially inwards the future.
25+ :A fellowship whose shares accept a rattling high P/E may accept high expected futurity growth inwards earnings, or this year's earnings may endure considered exceptionally low, or the stock may endure the bailiwick of a speculative bubble.
P/E History of Nifty - 2007 to 2015
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| Historical Nifty PE Chart |
How to calculate PE Ratio of Nifty?
Like for a company, PE tin post away equally good endure calculated for the benchmark indexes similar Sensex, Nifty, Bank Nifty etc.
Let us explicate y'all how to calculate the PE of Nifty which consists of 50 stocks. As nosotros explained earlier, PE is a ratio of the marketplace cost together with EPS for a company. Now if the same issue multiplies the numerator together with denominator, the value of this ratio volition non change.
For determining the PE for the Nifty, nosotros multiply both the marketplace cost together with EPS past times issue of shares outstanding.
Now, PE = marketplace cost * issue of shares outstanding / EPS* issue of shares outstanding
But marketplace cost * issue of shares outstanding = marketplace capitalisation together with EPS * issue of shares outstanding = cyberspace profit.
Therefore, PE forthwith becomes equal to marketplace capitalisation divided past times cyberspace profit.
Now, calculating PE for the Nifty is pretty simple. First y'all calculate the marketplace capitalisation of all 50 stocks of the Nifty together with add together them. Then y'all calculate the cyberspace profits of each of the 50 stocks making the Nifty together with amount that up. The ratio of full marketplace cap to full cyberspace profits is the Nifty PE. Nifty PE tin post away endure considered equally the PE of Indian stock marketplace equally well.
What does Price-To-Book Ratio - P/B Ratio mean?
P/B ratio used to compare a stock's marketplace value to its mass value. It is calculated past times dividing the electrical current closing cost of the stock past times the latest quarter's mass value per share.
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