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Discuss the factors that might explain the differences between these price earnings ratios.

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Valuation of a Company's Shares

The price earnings ratios on Feb 8th 2006 for five companies traded on the London Stock Exchange are listed below. All the companies are quite well know and involved in retailing in the UK. Discuss the factors that might explain the differences between these price earnings ratios.

Company Price/Earnings Ratio
Boots 19.9
JB Sports 9.4
Marks and Spencer 13.4
Morrison 47.2
Tesco 17.2

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Solution Summary

This solution discusses three factors that may influence a firms P/E ratio in 280 words.

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Price-Earnings Ratio.

It is the relationship between the market price of a share of stock and the stock's current earnings per share is often stated in terms of a price-earnings ratio. This ratio tends to be high in firms that have good future growth prospects. The price-earnings ratio is computed as follows:

Market price per share/ Earnings per share

The price-earnings ratio is widely used by investors as a general guideline in gauging stock ...

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