Invest
Common Sense and Price to Earnings Ratio
By InvestingNook  •  September 14, 2016

Even the most common price to earnings ratio is not as simple as you think.

There is an understandable tendency to put the different valuation methodologies into different baskets; each method does have its pros and cons. But at the end of the day, investors should remember that each method is just a different lens of looking at a company. There is only one intrinsic value. Theoretically, each method should arrive at the same value. At the very least, a proper calculation of intrinsic value should be agreeable across all methods of valuation. In other words, common sense should prevail at the end of the day.

To illustrate my point, let’s think a little deeper about the common price to earnings ratio.

A perpetual bond example

Consider a bond that pays 10% coupon in perpetuity – this means that it provides a 10% return on capital – what is the ...

...
Read the full article
By InvestingNook
As Co-Founder and Fund Manager of Heritage Global Capital Fund, we started InvestingNook as a website dedicated to sharing the knowledge of value investing – allowing our readers achieve an edge over the markets with the knowledge of value investing.
LEAVE A COMMENT
LEAVE A COMMENT

Your email address will not be published.

*

Your Email Address will not be published
*

Read More Articles
More from thefinance