The thief comes only to steal and kill and destroy; I have come that they may have life, and have it to the full. “I am the good shepherd. The good shepherd lays down his life for the sheep.

19 Mar 2018


Fixed Cost:  The cost component also generates internal risks, if fixed costs are high in the total cost .  During a recession or low demand for a product, the company cannot reduce the fixed costs.  At the same time , in a boom period, it cannot change the fixed factors at a short notice.  Thus a high fixed cost component can be a burden to the firm.  The fixed cost component must always be kept at as reasonable level, so it does not affect the profitability of a company.

P/E Ratio:  Investors prefer to use the price-earnings (P/E) ratio to estimate the value of stocks rather than adopting the discounting models.  Every financial magazine and newspapers publishes, at regular intervals, the price earnings per share.  The P/E ratio models have the following three distinct  advantages over the discounting models. (a)  The P/E ratio indicates price per rupee of share earnings.  This can help investors compare the prices of stocks, which have different earnings per share. (b)  P/E ratios are helpful in analyzing the stocks of the companies that do not pay dividend but have  earnings.  It should not be noted that when there is a loss, the P/E ratio analysis is difficult to use.  (c)  The valuables used in P/E ratio models  are easier to estimate than the variables in the discounting models.

With the P/E ratio models  the investor can only  find the relative positions of the different stocks.  They do   not  indicate what price is appropriate for a particular  stock.  For example, from the P/E ratio , the analyst can state that P/E ratio of TATA Motors at 58.07 (02-08-2012) is higher than Eicher Motors(42.53) and Maruti Suzuki (19.88).

Thanking you,                                                             See you later.

1 comment:

  1. Great and Awesome Post. Your knowledge is nice. Thanks you for sharing this post.

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