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Price to earnings (P/E)
The share price divided by the profit per share: how many years of today’s profit you pay for.
The P/E ratio divides a company’s share price by its earnings (profit) per share over the last year. A share at R100 that earned R10 a share has a P/E of 10.
A high P/E usually means the market expects profits to grow; a low one can mean it expects trouble, or that the share is overlooked. Compare a P/E with the company’s own history and with similar companies, not across very different industries.
A forward P/E uses analysts’ forecasts of next year’s profit instead of last year’s.
More terms
- Dividend yieldThe dividends paid over the last year as a percentage of today’s share price.
- Ex-dividend dateThe first day a share trades without its next dividend.
- Payout ratioThe share of its profit a company pays out as dividends.
- Market value (market capitalisation)The share price times the number of shares: what the market says the whole company is worth.
- IndexOne number that tracks a basket of shares, so you can see how a whole market or sector is doing.
- RebalancingResetting an index’s members and weights on a fixed timetable.
- Every term ↗
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