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Earning power |
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Earning powerEarnings before interest and taxes (EBIT) divided by total assets.Earning power Similar MatchesEarnings price ratioEarnings price ratioSee: Earnings yield Earnings capEarnings capA term which relates to a person's final salary in an occupational pension scheme taken out on or after 1st June 1989 (or 14th March 1989 if the scheme was new at that time) and is the upper limit of earnings allowable under the scheme.The upper limit of net relevant earnings qualifying for tax relief in a personal pension plan, which in turn limits contributions. State Earnings Related Pension SchemeState Earnings Related Pension SchemeA government scheme introduced in April 1978 which enables employees (but not the self-employed) to top up the basic pension they receive on retirement with additional pension payments based on their earnings.Employees make payments to SERPS by way of Class 1 National Insurance (NI) contributions. They can 'contract out' of SERPS and pay Class 1 contributions via a rebate which may be invested in an occupational pension or a personal pension plan.SERPS was replaced in April 2002 with the 'State Second Pension' which is designed to give more to the lower paid and middle earners, carers and the long-term disabled with broken work records. Whereas with SERPS, the more you earn, the higher your pension, S2P operate a flat rate which means that high earners will be better off opting for private pension schemes. Price earnings growth factorPrice earnings growth factorThe PEG of a company is calculated by dividing its prospective P/E ratio by the estimated future growth rate in earnings per share of the company. So to calculate a PEG, you first need to calculate its P/E ratio.P/E = current share price divided by earnings per shareA company with a share price of 100p and earnings per share of 5p has a P/E ratio of 100/5 = 20.By itself the P/E ratio is a useful ratio because it shows how many times the current earnings the shares cost - in a sense, how many years you would have to wait to get your money back if the company paid out all its earnings to shareholders. But the limitation of the P/E ratio is that it looks at historical information and does not relate the price of the shares to its future performance. The PEG ratio builds in that extra layer of sophistication.Using the example of the same company, imagine that the consensus brokers' forecast for its future earnings growth rate is 15%.PEG = P/E divided by estimated future growth rateFor this company, the PEG would be 20 divided by 15 = 1.33.According to Jim Slater, the investor who popularised the use of PEG's as a stock share selection tool, a share with a PEG of 1 or lower is attractive. Put simply, the lower the PEG, the less you are being asked to pay for estimated future earnings. Jim Slater did not recommend use of the PEG as the only criteria of share selection. There are plenty of other fundamental checks that have to be made too.Note that the estimated future earnings are a critical part of the PEG calculation, and that if the forecasts made by brokers are wide of the mark, the PEG ratio will be unreliable. Because of this danger, most advocated of PEG's recommend using consensus forecasts, rather than the forecasts of any single broker/analyst. Learning by doingLearning by doingRefers to the improvement in technology that takes place in some industries, early in their history, as they learn by experience so that average cost falls as accumulated output rises. See infant industry protection, dynamic economies of scale. Further Suggestionsprice earnings ratio (P/E ratio)Earnings before interest, taxes, depreciation, and amortization (EBITDA) Distance learning earnings factor Fully diluted earnings per shares Earnings momentum band earnings earning asset Earnings Pretax earnings or profits Earning asset normalised earnings Earnings before interest and, taxes (EBIT) Earnings response coefficient Learning curve net relevant earnings retained earnings Earnings before interest, taxes, and depreciation (EBITD) earnings yield Retained earnings Accounting earnings earnings per share Earnings yield taxable earnings upper earnings level |
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