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What is the price-earnings ratio? Explain the differences between it and the dividend yield. Give examples...

What is the price-earnings ratio? Explain the differences between it and the dividend yield. Give examples of each.

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Answer #1

Price earning ratio = Market price of equity share / Earnings per share

Price earnings ratio is an indication of how high the market rates or value of equity shares of a company.its helps to shareholders to decide whether shares should be purchased or not.it also helps in predicting market price of share at a future date and determining whether share is undervalued or overvalued.

Dividend yield is different from the price earnings ratio , it's indicates the current level of income from a share.its helps to shareholders to determine that how much dividend will be received if they buy shares of that particular company.

Dividend yield ratio = Dividend per share / Market price per share *100

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