PEG ratio

What is the PEG ratio? The PEG ratio is an investing rule of thumb that has been around for decades. The aim is to use the price earnings growth ratio to try to find growth at a reasonable price. TIMESTAMPS 0:00 What is the PEG ratio 0:15 Calculating the PE ratio 1:18 PEG ratio calculation 1:45 PEG ratio interpretation 2:33 Using the PEG ratio to buy and sell stocks 3:18 PEG ratio example 3:39 PEG ratio limitations 4:00 Which EPS and growth number 5:02 How to find PEG ratio data In order to calculate the PEG ratio we start off with calculating the PE or price-earnings ratio. The PE ratio is calculated by dividing a companys share price by an accounting metric called earnings per share. PE ratios are commonly quoted and widely used. For a company with a 50 share price and 5 EPS the price-earnings ratio is 10. The price-earnings ratio shows how much investors are willing to pay per dollar of earnings. How many years does it take to cover the price if earnings stay the same. Well guess what: earnings probably wont stay the same. Incorporating the growth rate into the picture adds some dynamics into the fairly static PE ratio. PEG takes the PEratio one step further. If the companys current EPS is 5 while it was 4 in the prior year then they realized an EPS growth rate of 25 over the past year. This is what you need to calculate the price-earnings-growth ratio: take the PE ratio that we calculated and divide it by the growth rate. PE of 10 divided by growth rate of 25 gives you a PEG ratio of 0.4. In the PEG ratio calculation the growth rate is adjusted from a percentage basis to a whole number basis. Philip de Vroe The Finance Storyteller aims to make accounting finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers financetraining in various formats: YouTube videos classroom sessions webinars and business simulations. Connect with me through Linked In! Want to get access to bonus content andor express your gratitude by buying me a cup of tea? Join my channel as a member through Want to track the total return on your stock portfolio share price increasedecrease plus dividends received then check out the easy-to-use online portfolio tracker called Sharesight: ,

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