From Investopedia, this definition of a company’s price to earnings ratio.
A valuation ratio of a company’s current share price compared to its per-share earnings. Calculated as:
Market Value per Share
Earnings per Share (EPS)
For example, if a company is currently trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock would be 22.05 ($43/$1.95). In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn’t tell us the whole story by itself. It’s usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company’s own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
Newcrest Mining (ASX:NCM) is the one Australian mining major exposed to the greatest level of country risk with 63% of its assets situated in nation-states categorized as ‘very high-risk’ by analysts. 63% of Newcrest’s assets are situated in countries categorized as ‘very high-risk’, including Papua New Guinea, Indonesia and the Ivory Coast, compared to 14% for Rio Tinto and 1% for BHP, the later of whom’s growth assets are primarily located in OECD nations.
Bloomberg gives the price to earnings (P/E) ratio of Rio Tinto as 7.3787, BHP as 7.8675, and Newcrest Mining as 17.0909.
Considering the warning that the P/E ratio may not be a valid comparative yardstick, I searched and found these comparative numbers–BHP first followed by Newcrest Mining.
- Net Profit Margin = 33.38/23.55
- Return on Assets = 24.98/8.19
- Return on Average Equity = 44.92/9.7