Fund's PE Ratio

PE is the Holy Grail for equity investors. As an equity fund investor, how much importance should you give to this? Well, the answer is that you shouldn't assign as much importance as you would give to a stock's PE. Let's see why. For a company, a PE ratio tells you how much investors are willing to pay for one rupee of its earnings (profits). This can be seen from the definition of PE ratio. It is the ratio of the share price of a company to its earnings per share (EPS). EPS is the profit that a company makes on a per share basis. So, if EPS is one, the PE ratio will reflect the price that an investor will pay for this one rupee of the company's profits. Because of this relation with a company's profits this ratio is also called the earning multiple. Some shares have higher PE ratio and some lower. Higher PE ratio signifies that investor expectatio

This article was originally published on September 11, 2003.