Read a PDF Sample of The Essential P/E - Harriman House

This Part starts with the story of how investors came to use the P/E. It has been in
use for less than a century, but during that time it has become the most important
investment ratio as far as practical investors are concerned.
Chapter 2 looks at the more complicated component of the P/E: earnings. How the
market decides share prices minute-by-minute is extremely complicated, but viewed
from the level of the P/E calculation, the price used is quite straightforward.
Earnings, however, are much more complex. There are many possible definitions of
which parts of the profit and loss account are really ‘last year’s earnings’, and I cover
them in detail here.
Having defined earnings, the share price and then the price–earnings ratio itself are
covered in the following chapter. As with earnings, there are several different ways
of calculating the P/E.
All the theory is brought to life in this Part’s final chapter, with a detailed example
of how the P/E works in practice using Haynes Publishing’s annual report.
3