Investing Foundations
Financial Ratios
Step 1 of 4 · Why ratios exist0 pts
A raw number tells you almost nothing. $3.5 billion of profit is enormous for one company and disappointing for another — the figure only means something next to something else.
The divides share price by . It expresses how many years of current you are paying for.
Why a high P/E is not automatically bad
A high P/E says the market expects earnings to grow. That is sometimes correct and sometimes not, which is the whole argument.
Apple traded near 43 times earnings in January 2008 and still returned more than fifty times your money — but it fell 54% first. A low P/E can equally signal a business in decline.
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