|
|
Quality of earnings |
|
|
|
 Home Site Map Add Term Search About Us Contributors |
Quality of earningsIncreased earnings due to increased sales and cost controls, as compared to artificial profits created by inflation of inventory or other asset prices.Quality of earnings Similar MatchesPrice earnings ratio (P/E ratio)Price earnings ratio (P/E ratio)P/E = current share price of a company divided by its earnings per shareA company with a share price of 100p and earnings per share (EPS) of 5p has a P/E ratio of 100/5 = 20.A company's P/E (also known as its multiple) shows how high its shares are priced in relation to its historical earnings. Although mathematically, it relates share price to past performance, the reality is that P/Es are more about forward expectations than the past. A high P/E indicates that the City expects the company's earnings to grow fast in the future.P/E 're-ratings' by the City can have a dramatic effect on share price. If a company regarded as a growth stock announces sharply reduced trading figures, fund managers may revise their view of the company, and decide that it doesn't justify a growth stock P/E of 20, and can only justify a more normal P/E of, say 12. If earnings were 10p share, that re-rating would suggest a change in share price from 200p to 120p.Equally, if a company announces some major technical breakthrough, or a major contract, the City may decide that its future earnings potential justifies a growth P/E, and re-rate it upwards from 12 to 20 (or equivalent figures). In which case the share price will leap.There is nothing formal about this re-rating procedure. It is simply buyers in the market pushing up the price to reflect a new perception of a company. But P/Es do tend to be comparative, in that companies in the same sector with similar prospects would normally have similar P/Es. If they don't, there is invariably a reason accounting for the difference. Primary earnings per (common) sharePrimary earnings per (common) shareEarnings available for the payment of dividends to common stockholders divided by the number of common shares outstanding. Normalised earningsNormalised earningsSee 'adjusted earnings'. Lower earnings limitLower earnings limitThe level of income at which employees start to pay Class 1 National Insurance contributions. Band earningsBand earningsPay between the lower earnings limit and upper earnings limit which is used to determine National Insurance Contributions. Further Suggestionsnet relevant earningsupper earnings level Earnings before interest and, taxes (EBIT) Earnings before taxes (EBT) Earnings Earnings before interest, taxes, depreciation, and amortization (EBITDA) earnings cap Earnings before interest after taxes (EBIAT) Earnings retention ratio earnings factor Earnings before interest, taxes, and depreciation (EBITD) earnings per share Earnings yield taxable earnings earnings retained earnings Pretax earnings or profits State Earnings Related Pension Scheme Accounting earnings price earnings growth factor Retained earnings Earnings response coefficient Earnings momentum Earnings price ratio Normalized earnings |
|
|
|