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Price to Earnings Ratio

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Please compare CPI's current PE ratio to our competitors to see where we stand in the market. Compare with Proctor & Gamble, Johnson & Johnson and Colgate.

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Today we are going to be comparing CPI's current price-to-earnings (PE) ratio to Proctor Gamble, Johnson & Johnson and Colgate. The price-to-earning ratio is a valuation of a company's current shared price compared to its actual per share earnings (Damodoran, 2012). Today we will be comparing CPI's current PE ratio to our competitors to see where we stand in the market.

The PE ratio is one of the most widely used ratios by investors and analysts to judge a company's performance. This ratio will also show CPI's investors what they should expect for our future earnings growth. We can also look at PE ratio as the amount an actual investor is willing to pay for each dollar earned by CPI (Sanders, 2011). You have to be careful though because the number can sometimes be misleading. If we have a high PE ratio it means that our investors are expecting better earnings from CPI. However, there are notable issues with using PE ratio because there are different variations on earnings per share. You will especially see this in high-growth (and high-risk) firms. PE ratios sometimes tend to be different because of there are different measures of earnings per share that can be used. There are two factors that can help explain this:

1. Volatility in earnings per share - This means that a firm's forward earnings per share can sometimes be substantially higher or lower than their trailing earnings per share (Damodoran, 2012). So their trailing earning shares can be significantly different from current earnings per share.
2. Management options - This means that your high-growth firms that tend to have more employee options can dilute the primary earnings ...

Solution Summary

The current solution compares CPI's current price-to-earning (PE) ratio in Proctor Gamble, Johnson & Johnson and Colgate. The solution assesses the factors that need to be considered when analyzing PE ratios. [1129 words]