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The value of the target company after the forecast period can be calculated by: Average corrected P/E ratio * net profit at the end of the forecast period. Example: VirusControl is expecting a net profit at the end of the fifth year of about €2.2 million. They use the following calculation to determine their future value:
Price-Earnings Ratio. You find a P/E ratio by dividing a stock’s share price by the earnings per share, or EPS, which is simply the total net profits from the last year divided by the total ...
Senior Analyst Anand Chokkavelu responds to the question of how investors should take the price-to-earnings ratio into account when gauging a company's growth value. The P/E ratio is used as an ...
Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as "not applicable" or "N/A"); sometimes, however, a negative P/E ratio may be shown. There is a general consensus among most investors that a P/E ratio of around 20 is 'fairly valued'.
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It was proposed by investor and professor of Columbia University, Benjamin Graham - often referred to as the "father of value investing". [ 1 ] Published in his book, The Intelligent Investor , Graham devised the formula for lay investors to help them with valuing growth stocks, in vogue at the time of the formula's publication.
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A lower ratio than 1.00 indicates an undervalued stock and a value above 1.00 indicates overvalued. The P/E ratio used in the calculation may be projected or trailing, and the annual growth rate may be the expected growth rate for the next year or the next five years.