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Q: Why price earning ratio does not considered measure of profitability?
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What is a formula of Earning ratio and earning per share?

Price earning ratio = market value per share / Earning per share Earning per share = Net income available to share holders / number of shares outstanding


How do you assess a company's profitability?

Profitability means ability of the entity to earn more than the costs they incurred on their business operation. Normally, the price of the good available for sale (unit per rate) is higher than its cost in order to earn profit. Thus, unit price - unit cost = profit


How is a stock price calculated at end of market day?

The most important factor for calculated stock price is earning per share, which indicates how profitable a company is.


Increase in profit but decrease in share price?

Many possible reasons, a few of which are: 1) Negative outlook for that sector, thus market believes increases are anomalous, 2) Company is taking on new debts, 3) Company is not reinvesting those profits in a way which will promote eventual growth 4) Increased profit created by a one time deal/ or created by some means which is considered unsustainable... Short term profitability changes do not drive long term value of shares. If overall value or growth potential of a company are not seen by the market to be increased, even with the occurrence of a recent increase of profitability, share prices will not rise! Remember, the price of a stock is based primarily on PEOPLE's subjective opinion, or what they are willing to buy/sell it for. So if people perceive that a company will begin to/continue to struggle, in spite of recent increases in profitability, there will be few buyers to support the price of that company's stock. A company might be increasing profits while at the same time fire-selling its assets, and thus the asset value of the company is decreasing. Profit increases/decreases are a small part of the overall picture!


Why is gasoline considered a variable cost?

Because the price of gasoline changes quite often and is not a fixed cost.

Related questions

What is the price earning relationship?

More than you can afford


How does the price of share is increased or decreased?

The fluctuation in price of shares stems from a company's profit or ability to earn profit. If profitability increases, then share price increases also.


What is a formula of Earning ratio and earning per share?

Price earning ratio = market value per share / Earning per share Earning per share = Net income available to share holders / number of shares outstanding


What does price earning mean?

The price to earnings ratio is how investors determine how the security is priced. For example, with a high P/E the security is considered expensive, while a low P/E is considered cheap. Most investors tend to buy securities with a low P/E. Let me know if this helps.


What is the price-earning?

If you mean the price-earnings ratio. It is the price per share of a common stock divided by the annual earnings of the stock.


In a market economy a high price is a signal for?

rising profit, because in case of scarcity, the price signal induces producers to increase their capacity because rising price means rising profitability. :)


What is most likely to lead to an increase in the price of a company's stock?

It's profits are increased.


How do you assess a company's profitability?

Profitability means ability of the entity to earn more than the costs they incurred on their business operation. Normally, the price of the good available for sale (unit per rate) is higher than its cost in order to earn profit. Thus, unit price - unit cost = profit


How does Price line make money in its business?

BY earning commissions for the travels booked.


Is a price list considered an offer?

No, price lists are considered as advertisement.


What has the author Antonia Scalia written?

Antonia Scalia has written: 'Bidder profitability under uniform price auctions and systematic reopenings'


How does a company affect the price of its stock?

The company's earning record and future earnings probability will influence the price of the stock to a very large extent.