Interview Question: Gimme a P and an E

Sample Question #62 (finance – equity pricing)

What exactly is the P/E ratio? What’s the "P" and what’s the "E" (give me the exact definitions)? Finally, how would you go about forecasting a stock’s P/E?

(Comment: the last question is a case-type question and is quite tough)

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One Response to Interview Question: Gimme a P and an E

  1. Brett says:

    ANSWER
     
    P is stock price and E is per-share earnings, usually measured as the latest 12-month average. There are many ways to forecast P/E; some examples: 1) Assume P will stay stable and use forward-looking E. 2) Assume P has some kind of trend and use either current E or forward-looking E. 3) Use an econometric forecasting model. 4) Just assume P/E never changes! 

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