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Finance GlossaryP/E Ratio (Price-to-Earnings)
P/E Ratio (Price-to-Earnings)
Definition of P/E Ratio (Price-to-Earnings)
Price to Earnings (P/E) Ratio is one of the most popular valuation ratios used by Indian investors. It measures the relationship between the current stock price and the earnings per share (EPS) of a company. The formula is: P/E Ratio = Market Price per Share / Earnings per Share (EPS). The P/E ratio shows how many times more than its earnings investors are willing to pay for one share of the company.
Related Terms
Bracket Order
A bracket order is used in intraday trading to limit downside and lock upside by placing three types of orders together:
- Buy or sell order at market price
- Target order to square off & book profits
- Stop-loss order to limit loss
Forex Trading
Forex trading means buying and selling currency pairs through exchange-traded derivatives or on the OTC market. A currency can only be bought and sold in exchange for another currency, which is why forex trading is always done in pairs.
Trading forex derivatives is carried out on stock exchanges authorized by regulatory bodies (SEBI & RBI), in tandem with approved brokers who allow users to engage with the forex futures trading and options trading markets.
Trading forex derivatives is carried out on stock exchanges authorized by regulatory bodies (SEBI & RBI), in tandem with approved brokers who allow users to engage with the forex futures trading and options trading markets.
Bottom Up Investing
Bottom-up investing is a stock picking strategy that uses analysis of individual companies and shares for decision-making instead of focusing on the broader economy, market, or industry.
Treasury Bills (T-Bills)
Treasury Bills (T-Bills) are short-term debt instruments issued by the government with maturities typically ranging from a few days up to one year. They are considered low-risk investments and are sold at a discount to face value. The return is earned through the difference between purchase price and maturity value.
Placing
Placing, or Private Placement, is a process of raising capital in which a company sells its securities (stocks or bonds) to a selected group of investors (such as banks, mutual funds, insurance companies) or high net worth individuals instead of selling them to the general public through a public offering (like an IPO). In India, companies frequently use private placement to raise funds in a short period of time from specific investors. This is a faster and less expensive process than a public issue.
Red Herring Prospectus
A Red Herring Prospectus (RHP) is a preliminary offer document filed with SEBI when a company plans to go public through an IPO, outlining the company’s business, financials, risks, management, and most issue details. It does not include the final offer price or the exact number of shares being issued. It is marked with a bold red disclaimer indicating that certain key information like price and share count is incomplete or subject to change, and it helps investors assess the company before subscription. Once the offer price and share details are finalised (usually after book-building), the final prospectus with complete priced details is issued for public use.
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