Thursday, 6 April 2017

Price to earning ratio

Price to earning ratio

Price to earning ratio is the ability of a company to generate profit compared with the capital used and expressed in percentage. At the level of earning ratios reflect the company's capital in generating profit, this means that a high level of earning ratios can be a high efficiency as well.

How to use the level of earning ratios for the efficiency measures is a good way for a company will be hard to improve efficiency increases without profitability. But keep in mind that not all of the increase in earning ratios will reflect rising efficiency, as can also happen otherwise.

For example the company earning ratios rise, at the time the company often have the strike the laborer, and damages the engine, after investigation, it turned out that profitability affected by the increase in the selling price which incidentally can be obtained because the arrival of the rival goods late, caused due to an unexpected strike, to see the efficiency of the use of funds in the company's prioritize it instill into to maximize profit.

The company seeks to raise profitability can only improve the profit will provide a relatively low earning ratios are high, the alternative is this kind of leadership the company will use existing funds as efficiently as possible.

To assess the earning ratios of an enterprise, can use three kinds of ways. The analysis of financial statements,  as follows
Earning before interest and § taxes

   A.                       Net Profit         x 100%
                              Total Assets

This ratio is used to find out until to what extent in capital invested in the whole of the assets that exist within the company can gain an advantage. The advantage in question is the profit before deducting interest and taxes.

   B.                 Net Profit          x 100%
                    Total Assets

This ratio to see between the net profit (net profit) after deducting interest and taxes divided by the total assets.
   C.                         Net Profit           x 100%
                                Net Work

This ratio is used to look at the skill level of its own capital to earn a profit. But to know the level of limits the ability of a company to obtain a profit, can also be used the ratio between net operating in come with net sales, then the comparison is expressed in percentage, that is:
    D.   Profit Margin =               Net Operating In Come    x 100%
                                                     Net Sales 

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