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Financial Accounting Standards Board
Categories: Accounting, Fundamental Analysis, Forex,
in the United States, an independent organization responsible for establishing the standards of financial reporting and accounting for companies in the private sector. The securities and exchange commission performs a comparable role for public companies.
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Price-to-earnings Ratio (P/E)
Categories: Finance,
The price-to-earnings ratio (P/E) is the relationship between a company's earnings and its share price, and is calculated by dividing the current price per share by the earnings per share.A stock's P/E, also known as its multiple, gives you a sense of what you are paying for a stock in relation to its earning power. For example, a stock with a P/E of 30 is trading at a price 30 times higher than its earnings, while one with a P/E of 15 is trading at 15 times its earnings. If earnings falter, there is usually a sell-off, which drives the price down. But if the company is successful, the share price and the P/E can climb even higher. Similarly, a low p/e can be the sign of an undervalued company whose price hasn't caught up with its earnings potential. Or, conversely, a clue that the market considers the company a poor investment risk.Stocks with higher P/Es are typical of companies that are expected to grow rapidly in value. They're often more volatile than stocks with lower P/Es because it can be more difficult for the company's earnings to satisfy investor expectations.The P/E can be calculated two ways. A trailing p/e, the figure reported in newspaper stock tables, uses earnings for the last four quarters. A forward p/e generally uses earnings for the past two quarters and an analyst's projection for the coming two.
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