The price earnings ratio is the ratio of the market price per share to the earnings per share i.e.

PE =  Market Price per share
            Earning per share

The earnings per share (EPS) is basically considered on the basis of net profit for the last four quarters. This is popularly known as the trailing P/E. When the EPS is based on the expected earnings for the next few quarters, then what one gets is known as the forward P/E. There is also a third variation that takes the in-between path, where the EPS for the last two quarters and forward earnings for the next two quarters are taken into account.

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P/BV is a valuation ratio and is arrived at by dividing the market price of a share with the respective company’s book value per share. Now, book value is equal to the shareholder’s equity (share capital plus reserves and surplus). Book value can also be arrived at by subtracting current liabilities and debt from total assets. For the banking and finance companies, book value is calculated as ’share capital plus reserves minus miscellaneous assets not written off. This formula then takes care of the bank’s NPAs and gives a correct picture.

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A dividend is a manner in which a company shares its wealth, which it generates out of the course of business with the shareholders. Dividends are paid to a shareholder on a quarterly or half yearly or on an annual basis. Dividends, by the name of dividends have to be mandatory paid in cash as per Section 205 (3) of the Companies Act 1956. However, another form of dividend though not termed, as dividend is the issue of bonus shares, which for all financial purposes is also a proxy for dividends. Companies have an option of paying out dividends out of their current earnings after tax or out of retained earnings. Companies in a high growth phase normally deploy the complete earnings in the business and so tend to not give dividends, but companies, which are in a stable phase, normally share it with the investors as dividends.

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