|
|
Earning power |
|
|
|
 Home Site Map Add Term Search About Us Contributors |
Earning powerEarnings before interest and taxes (EBIT) divided by total assets.Earning power Similar MatchesEarnings before interest after taxes (EBIAT)Earnings before interest after taxes (EBIAT)A financial measure defined as revenues less cost of goods sold and selling, general, and administrative expenses. In other words, operating and nonoperating profit before the deduction of interest plus cash income taxes. Equivalent to EBIT minus cash taxes. Earning assetEarning assetAn asset that generates income, e.g., income from rental property. Earnings momentumEarnings momentumAn increase in the earnings per share growth rate from one reporting period to the next. 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. Retained earningsRetained earningsAccounting earnings that are retained by the firm for reinvestment in its operations; earnings that are not paid out as dividends. Further Suggestionsearnings yieldEarnings before taxes (EBT) earnings Earnings before interest, taxes, depreciation, and amortization (EBITDA) earnings cap Learning by doing Primary earnings per (common) share State Earnings Related Pension Scheme upper earnings level Accounting earnings Earnings yield taxable earnings price earnings ratio (P/E ratio) band earnings earnings factor lower earnings limit Earnings earning asset Learning curve Normalized earnings Earnings response coefficient adjusted earnings Earnings before interest, taxes, and depreciation (EBITD) Earnings retention ratio Fully diluted earnings per shares |
|
|
|