E/P, EPS and REG ratio

midou7172 · 30 April 2013

Hi everybody,

Trust me, I did a lot of Google search about E/P, EPS and REG ratio. I read about them and even read Newbie Lessons - All your questions answered thread (great thread, by the way).

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,

burglar · 30 April 2013

midou7172 said:
Hi everybody,

Trust me, I did a lot of Google search about E/P, EPS and REG ratio. I read about them and even read Newbie Lessons - All your questions answered thread (great thread, by the way).

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!

Try these two links:

http://www.investopedia.com/terms/p/price-earningsratio.asp

http://www.investopedia.com/articles/fundamental-analysis/09/price-to-earnings-and-growth-ratios.asp

Let us know how you get on!
Cheers

midou7172 · 1 May 2013

Thank you burglar, I feel less lonely now.

burglar said:
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...

Klogg · 1 May 2013

midou7172 said:
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.

midou7172 · 1 May 2013

Thank you so much for your time.

Klogg said:
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?

Klogg said:
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,

midou7172 · 1 May 2013

midou7172 said:
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.

burglar · 1 May 2013

midou7172 said:
Sorry I mean "Ratio" not "Ration"... English is my third language and that is my only consolation.

Your English is Ok.

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.

midou7172 · 1 May 2013

burglar said:
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?

burglar said:
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...

I will get back to you once I read your second link.

burglar · 1 May 2013

midou7172 said:
... 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.

Zedd · 1 May 2013

midou7172 said:
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.

midou7172 · 2 May 2013

burglar said:
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...

midou7172 · 2 May 2013

Zedd said:
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.

I am now reading my second link from burglar:
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,

midou7172 · 2 May 2013

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?

burglar · 2 May 2013

midou7172 said:
... 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!

midou7172 said:
... 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!

midou7172 said:
... 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!

midou7172 · 2 May 2013

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

Hello Burglar,

I like your opinions ~~

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.

burglar · 2 May 2013

midou7172 said:
... 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!!

midou7172 · 2 May 2013

burglar said:
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 ....?

burglar · 2 May 2013

midou7172 said:
"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.

midou7172 · 2 May 2013

burglar said:
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.

burglar · 2 May 2013

midou7172 said:
... 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.

2. Traders watch buying & selling volumes, in those fancy monitors.

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!!

E/P, EPS and REG ratio

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