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Financial Analysis

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  • February 11, 2022
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Earnings-Price Ratio

A financial ratio that relates earnings per share (EPS) to the market value per ordinary share:

Earnings-price ratio = (EPS/P) × 100

Where: EPS denotes earnings per share; P is market value per share (price per share).

This ratio measures the rate at which a company’s expected earnings will be capitalized in the coming period. It divides the projected earnings per share (or the most recent four quarters’ earnings per share) by the current market price of the stock. A relatively low E/P ratio indicates higher-than-average-growth in earnings. Earnings-price ratio is the reciprocal of the price-earnings ratio (P/E ratio). As such, if P/E ratio is 10 times, then the E/P ratio is 5. Practically, both ratios are used to rank stocks. However, when stocks have zero or negative EPS, a ranking by earnings-price ratio (E/P ratio) is particularly reasonable as opposed to ranking by P/E ratio.

This ratio is also known as earnings capitalization rate or earnings yield.


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