E/P, EPS and REG ratio - Aussie Stock Forums

# Thread: E/P, EPS and REG ratio

1. ## E/P, EPS and REG ratio

Hi everybody,

Somehow, I still can’t get these concepts in my head. Usually, Math and me, we don’t really understand each other.
I understood that these should be analyzed in the context, “apple against apple” etc… But somebody can (again) explain me in very simple way what these numbers are telling me?
And again, is good if they are high or low? If high or low is not important, what are the concept behind of them? again???

Little bit of compassion for beginners, please. Hopefully it will make you a better person

cheers,

2. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
Hi everybody,

Somehow, I still can’t get these concepts in my head. Usually, Math and me, we don’t really understand each other.
I understood that these should be analyzed in the context, “apple against apple” etc… But somebody can (again) explain me in very simple way what these numbers are telling me?
And again, is good if they are high or low? If high or low is not important, what are the concept behind of them? again???

Little bit of compassion for beginners, please. Hopefully it will make you a better person

cheers,
google investopedia ... it is invaluable!

http://www.investopedia.com/terms/p/...ningsratio.asp

http://www.investopedia.com/articles...wth-ratios.asp

Let us know how you get on!
Cheers

3. ## Re: E/P, EPS and REG ratio

Thank you burglar, I feel less lonely now.

Originally Posted by burglar
Let us know how you get on!
It hurts my brain.

First obstacle: What is "Earning" in share? Is that dividend + capital growth?

EPS = If I paid 10\$ for one share and it gives me 10 cents dividend, how can I calculate my EPS as I didn't sell my holding yet? Do I calculate this as if I sold them at that moment ? It is hard to comprehend for me as share price change everyday...

4. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
Thank you burglar, I feel less lonely now.

It hurts my brain.

First obstacle: What is "Earning" in share? Is that dividend + capital growth?

EPS = If I paid 10\$ for one share and it gives me 10 cents dividend, how can I calculate my EPS as I didn't sell my holding yet? Do I calculate this as if I sold them at that moment ? It is hard to comprehend for me as share price change everyday...
Midou, it takes a while to get used to using the ratios as if they are part of normal calculations, but it does happen.

The "earnings" in earnings per share is calculated like this:

If a company made \$2mil in profit, and has 1million shares available, then:

Earnings per share = Total Profit/Total Number of Shares
= 2mil / 10mil
= \$2 per share

Your dividends on the other hand are generally (not always) a component of those earnings.
For example, on some sites you'll see a "Payout Ratio", which is a percentage value. It's the percentage of earnings that were paid out as dividends.

So if we work on the \$2 per share we had earlier, and had a payout ratio of 50%, then we get:
Dividend = 50% of \$2
= \$1 dividend.

Also, with your comment around calculating EPS - this has nothing to do with your purchase or sale price. Whether you bought the shares in above examples for \$5 or \$10, you're still getting a \$2 per share earnings, as this is the profit the company made.

5. ## Re: E/P, EPS and REG ratio

Thank you so much for your time.

Originally Posted by Klogg

If a company made \$2mil in profit, and has 1million shares available, then:

Earnings per share = Total Profit/Total Number of Shares
= 2mil / 10mil
= \$2 per share
\$2mil in profit, and has 1million shares available = 2mil / 10mil
Do you mean company has 10million shares available? not 1milion?

Originally Posted by Klogg
Also, with your comment around calculating EPS - this has nothing to do with your purchase or sale price. Whether you bought the shares in above examples for \$5 or \$10, you're still getting a \$2 per share earnings, as this is the profit the company made.
Thanks !!! this is like a light in my brain!!!! So in this case, EPS(earning per share) is \$2! and PE ration is calculate based on the price of the share on the market. Right?

E/P, PE, PE ration means all the same things?

Cheers,

6. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
Thank you so much for your time.
PE ration
Cheers,
Sorry I mean "Ratio" not "Ration"... English is my third language and that is my only consolation.

7. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
Sorry I mean "Ratio" not "Ration"... English is my third language and that is my only consolation.

Now with the explanations you have,
can you go back to Investopedia links and understand a little more?

I am assuming you want to be an investor and you wish to understand balance sheets.

8. ## Re: E/P, EPS and REG ratio

Originally Posted by burglar
can you go back to Investopedia links and understand a little more?
http://www.investopedia.com/terms/p/...ningsratio.asp

Actually, Yey!! I do understand what is written on Investopedia about P/E ration !!!

In my mind, I am thinking that P/E Ratio can dramatically vary depending on speculation as well.

But I am not following why technology company would have a high P/E compare to a utility company industry?

Originally Posted by burglar
I am assuming you want to be an investor and you wish to understand balance sheets
Yes burglar, but at the moment, I am far from "being an investor" with my 5000\$ bet on the roulette of shares market. thread: Bought my first shares: Am I doing OK?, that's me...

9. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
... Actually, Yey!! I do understand what is written on Investopedia about P/E ratio ...
P/E is only part of the jigsaw puzzle.
Lots of stuff to learn (should you so choose).

That's why I go to investopedia (albeit they are American)
No opinions, no bullsh!t definitions.

10. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
http://www.investopedia.com/terms/p/...ningsratio.asp
But I am not following why technology company would have a high P/E compare to a utility company industry?
.
Price is a reflection of expected future earnings. A high P/E indicates that the market is expecting future earnings to be greater than current earnings. Keeping this in mind consider the differences between earning expectations between the industries. In the tech industry, especially companies in the R&D phase of a new product, current earnings can be insignificant compared to when they launch the product. Utilities earnings are usually far more stable.

11. ## Re: E/P, EPS and REG ratio

Originally Posted by burglar
P/E is only part of the jigsaw puzzle.
Lots of stuff to learn (should you so choose).

That's why I go to investopedia (albeit they are American)
No opinions, no bullsh!t definitions.
Thanks burglar,

I am thinking... you must be a pragmatic person.

I guess people learn different way. I personally like opinions (and maybe a little bit of "bull****") during my learning course. It give me a strength to grow my own opinion and more personalized picture of the subject I am learning.
Probably this is the reason why I am not good in Math. "1+1=2" is too abstract for me to understand but I do understand when I eat 1 apple and another apple later, that means I had 2 apples in total.

Yeah... I know... typical female...

12. ## Re: E/P, EPS and REG ratio

Originally Posted by Zedd
Price is a reflection of expected future earnings. A high P/E indicates that the market is expecting future earnings to be greater than current earnings. Keeping this in mind consider the differences between earning expectations between the industries. In the tech industry, especially companies in the R&D phase of a new product, current earnings can be insignificant compared to when they launch the product. Utilities earnings are usually far more stable.
Thanks Zedd,

So, if I buy shares of a start-up business with high P/E , that means I believe in their future growth.
Guys, this is so cool. I feel that I am finally getting somewhere.

http://www.investopedia.com/articles...wth-ratios.asp
and my brain feels a pain again.
What is "earnings by the price (E/P)" ? Is this same as P/E(price-to-earnings) ?
if so, "P/E" is same as "P/E ratio" ?

I am struggling with terminologies issues as well when reading about shares.

As burglar said "this is only part of the jigsaw puzzle"... I hope that I will get there before I go under the ground. Otherwise, it defeats the purpose, isn't it?

Cheers,

13. ## Re: E/P, EPS and REG ratio

Hey guys,

correct me if I am wrong:

If I buy 10\$ share and it's EPS(earning per share) is 2\$.

My Price to Earning Ratio (P/E ration) is 10/2 = 5. Right?

If I divide 2\$(earning) by 10\$(price): 2/10 = 0.5 is this so called (E/P) the earnings yield?

14. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
... I hope that I will get there before I go under the ground. Otherwise, it defeats the purpose, isn't it? ...
You got that right!

Originally Posted by midou7172
... So, if I buy shares of a start-up business with high P/E , that means I believe in their future growth ...
Yes, you and other shareholders!

Originally Posted by midou7172
... What is "earnings by the price (E/P)" ? Is this same as P/E(price-to-earnings) ?
if so, "P/E" is same as "P/E ratio" ? ...
The slash "/" is a divide sign so "P/E" is Price divided by Earnings. I think it is expressed as a number.
The reciprocal (upside down) of P/E is E/P or Earnings divided by Price.
It suits a slightly different purpose.
Whenever these numbers are expressed as a ratio eg 1:2, it become the "P/E ratio" or whatever ratio.

This is all opinion.
You may wish to check it against a reliable souce!

15. ## Re: E/P, EPS and REG ratio

Originally Posted by burglar
This is all opinion.
You may wish to check it against a reliable souce!
Hello Burglar,

Yeah, finally I found what "/" means = "divide"... bloody XXXX. I wish your post came bit earlier. It would save me a lot of times and my brain cells.

I am going thought about earning yield now.

Example:
One share price is \$31.56 today and it's EPS is \$2.06, so E/P = 0.065(earning yield).
Am I correct? If so, it sounds like a little earning yield.

16. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
... Example:
One share price is \$31.56 today and it's EPS is \$2.06, so E/P = 0.065(earning yield).
Am I correct? If so, it sounds like a little earning yield.
Yes, but it's like comparing the price of a house against weekly rent!!

17. ## Re: E/P, EPS and REG ratio

Originally Posted by burglar
Yes, but it's like comparing the price of a house against weekly rent!!
"house price" against "weekly rent". Yes, no problem! That is really stupid thing to do.

but... any more explanation to go with ....?

18. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
"house price" against "weekly rent". Yes, no problem! That is really stupid thing to do.

but... any more explanation to go with ....?
No. You misunderstood me. The share price is large, the earnings per share is small, but it is annual earnings.
Hopefully after 10 or twenty years the earnings add up and come back to you in the form of Dividends or growth.
That is why you seek year-on-year growth in earnings in your companies.

19. ## Re: E/P, EPS and REG ratio

Originally Posted by burglar
No. You misunderstood me. The share price is large, the earnings per share is small, but it is annual earnings.
Hopefully after 10 or twenty years the earnings add up and come back to you in the form of Dividends or growth.
That is why you seek year-on-year growth in earnings in your companies.
Thank you burglar,
I am starting to understand what you are saying! In fact, I am only calculating annual earning with today's share price.
I am going into the REG ration... but before doing that, below are my understandings about the nature of share and its market.
Correct me if I am wrong.

1. Share price goes up with inflation because the company profit grows up with inflation. Hence, people are willing to pay more for a share.

2. When share market crash, that is because investors are selling in massive volume. Less buyer=Low price. Is this one of the reason why you guys watching "volume" in thoses fancy monitors?

Dear burglar, I think we are on our way to become good mates Your inputs are much appreciated.

20. ## Re: E/P, EPS and REG ratio

Originally Posted by midou7172
... 1. Share price goes up with inflation because the company profit grows up with inflation. Hence, people are willing to pay more for a share.

2. When share market crash, that is because investors are selling in massive volume. Less buyer=Low price. Is this one of the reason why you guys watching "volume" ?

Dear burglar, I think we are on our way to become good mates Your inputs are much appreciated.
*gulp*

1. A good company should grow much faster than inflation!
Growth =value, hence people are willing to pay more for a share.

A "Value Investor" seeks good companies which are cheap (=Undervalued)
A "Trader" seeks a company with a trending Share Price (rising or falling); when indicators point to a likelyhood that it will continue to trend.

Yes ... they make money in rising markets and in falling markets!!

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