PER (price earning ratio )

guillaume07 · June 30th, 2007, 5:59 pm

is it possible to have a PER smaller that one ?thanks

villiger · July 2nd, 2007, 4:39 am

Sure. E is taken from the last annual report, P is the current market capitalisation. Imagine a company that has lost its main asset (e.g. through withdrawal, law suit, etc). It had large earnings E and after that the price fell dramatically to today's P. In a stable environment however, the P/E will always be larger than 1, it would actually give you some kind of insight what discount rate the market uses.