P/E Discussion, Stocks and Bonds, Finance and Capital Markets

Can looking at the price per share tell a buyer the value of a stock? Not necessarily, Sal explains as he calculates the price-to-earnings ratio to demonstrate this relativity. He reminds learners to consider the source of a company's reported earnings per share, specifically the trailing 12-month earnings. He compares two companies, explaining the meaning of the resulting ratios and how they can change from year to year. Sal also outlines stock trends as a reason to invest in a company with a high P/E ratio. Finally, he briefly breaks down the reduced value of future earnings and explains the standard 10 times price-to-earnings ratio based on an earnings stream and inflation. This last part will require more explanation on your part, as it isn't comprehensively explained.