Financial ratios are numbers generated by dividing one piece of financial data by another, which can help business managers interpret financial information. Financial ratios have different meanings depending on the financial data used to calculate them, so there is no single answer as to whether it is good to have high or low financial ratios.
There is no concrete answer regarding whether a higher or lower PE ratio is more desirable; rather potential positives and negatives exist in either case. Once an investor identifies a relatively high or low PE ratio, it is important for that investor to do further research to determine the cause.
PE ratios are commonly expressed as a single number rather than the two separate numbers used to compute the ratio. On the other hand, some investors are wary of low PE ratios because they can signify that a stock is not attractive to the market.
Essentially, some investors screen for bargains by looking for low PE ratios, while others question why the stock is trading at such an apparently attractive price in the first place.
A stock with a high PE ratio is said to be overvalued by some market analysts.
However, the high PE ratio can also be a sign of strength, as it means that investors are willing to pay a premium for a stock. Companies in different sectors have varying operational and business structures; as a result, the average PE ratio for a stock varies depending on its market sector.
When judging whether a PE ratio is high or low for any stock, compare the stock to others in the same sector rather than to the market in general.
References The Motley Fool: Cite this Article A tool to create a citation to reference this article Cite this Article.Nov 30, · what does a high P/E ratio like for example: , or also if the P/E ratio is a hundred and the ROE , as a risk averse investor does this bank have high risk(high p/e ratio) but very little return (low ROE), also the EPS is Status: Resolved.
Is low (high) PE cheap (expensive)? ¨ Proposition 3: Companies with very low or very high growth rates will tend to have higher PEG ratios than firms with average growth rates.
This bias is worse for low growth stocks. growth to the return on equity: g = (1 -Payout ratio) * ROE. Additionally, these companies are high growth companies in most cases, where we can apply alternate measure like PE ratio or PEG ratio to incorporate growth during valuations. Other sectors where you will find higher Price to Book value ratio and CANNOT apply P/B Ratio.
Sep 24, · Its fairly intuitive that a company with a high CAP and high ROE should have a high PE. But these permutations have thrown a few insights For similar CAP and growth rates a company having an ROE of 20 % should have a PE which is times that of a company with an ROE of 10%.Author: Rohit Chauhan.
The problem with using this metric is that companies can carry a lot of assets that have nothing to do with their operations, so ROA isn't always an accurate measure of profitability. ROE has. A high risk level, with a high debt ratio, means that the business has taken on a large amount of risk.
If a company has a high debt ratio (above.5 or 50%) then it is often considered to be"highly leveraged" (which means that most of its assets are financed through debt, not equity).