Introduction to the Price-to-Earnings Ratio

Curated and Reviewed by Lesson Planet

Young economists explore the price-to-earnings ratio (and the earning-to-price ratio) as Sal explores the case study from previous videos. He lays out the market capitalization for the company and the price per share, explaining that it is trading at a discount to book value. Learners take a look at the trailing 12-month earnings and get a brief glimpse of forward earning calculations. Sal explains the role of sell and buy-side analysts and calculates the earnings-to-price ratio for the TTM. Connecting it with the return on a personal bank account, he asks why anyone would choose a bank over a company's assets, explaining country risk, volatility, and liquidity.

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