If you read any investment consulting magazine in india you would often come across the phrase " valuations" or you might have heard udyan mukherjee on cnbc tv referring to it. What does one mean when it says that the valuations are not cheap--in simple words it would mean that purchasing the companys share at present market price is not a good bargain considering what the companys profit is or what it is "Earning". It is this earning which when divided by the number of shareholders gives us the EPS or the Earning per Share. Obviously a company which is earning more per share would benefit the share holder more, as they are likely to be rewarded by greater dividends and higher share price in the market.
The market price of the share when divided by the EPS or the Earning per share gives us the important ratio for comparison known as the PE ratio or P/E or Price to Earning Ratio. It is this ratio that determines the valuation of the company as compared to its peers in the particular industry group. A higher would therefore mean that its valuation is expensive. Thanks for now we shall touch some other fundamental issues before we start to come on technical analysis which decides when to buy or sell.
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