Australia Share Trading Price
A valuation ratio of a company's Australia share trading price compared to its per-share earnings.
Australia Share Trading Price = Market value per Share / Earnings per Share (EPS). For example, if an Australian company is currently trading at $43 a share and earnings over last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95). Eearnings Per Share is usually from the last four quarters (trailing P/E), but usually it can be taken from the summary of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the overall summation of the last two actual quarters and the additional estimates of the next two quarters.
Also sometimes known as "Australia share trading price multiple" or "earnings multiple".
In general, a high P/E suggests that the investors are expecting highest earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio does not tell us the overall story by itself. It's usually more useful to compare the P/E ratios of certain company to other companies in the same industry, to the market in general or opposed the company's own historical P/E. It wouldn't be useful for certain investors using the P/E ratio as a basis for their investment to compare the P/E of certain technology company (high P/E) to a utility company (low P/E) as each industry has more different growth prospects.
The P/E is often referred to as the "multiple", because it shows how much investors are willing to pay per the Australia share trading price. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that certain investor is willing to pay $20 for $1 of current earnings. It is important that Australian investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this share measure alone. The denominator (earnings) is based on an accounting measure of overall earnings that is susceptible to forms of manipulation, making the best quality of the P/E only as good as the quality of the underlying Australia share trading price.
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