The Architecture

Project Description

If it is expected that earnings of a firm will grow, then the market will be willing to pay a higher multiple per rupee of earning. The focus is, therefore, on ‘prospective’ PE or how much the current price is 56 discounting the future earnings. For example, when analysts say that shares of XYZ company is trading at 20 times its 2014 earnings, but is still about 15 times the 2015 earnings, given the state of its order book. What they are saying is that the growth in EPS is likely to be high, and therefore the current high PE based on historical numbers may not be the right one to look at. Most publications and reports show the PE using historical earning numbers from the latest quarterly reports. Analysts’ estimates of future earnings are not widely available and they may vary. Some publications report ‘consensus’ view of prospective earnings