We have already discussed about Return on Equity (ROE), Current Ratio, Earning per Share (EPS) and Earning per share growth in my previous post. Now we are discussing about one of the important feature of fundamental financial analysis  Sri lanka Stock Market and this is knows as Price Earning Ratio (PE Ratio).
Price Earning Ratio (PE ratio)
Price Earning Ratio (PE ratio) is also a great indicator for investor like Earning per Share (EPS). Price Earning Ratio (PE ratio) is also very important factor all owner the world and from this method you can get a further idea on company behavior. PE ratio can calculated on any company or this can also calculate for entire  Sri lanka Stock Market or sector of the market.
PE ratio of any company can calculated easily as follows.
 Price Earning Ratio (PE ratio) =(Market Value Per Share)/(Earning Per Share (EPS) )
We learned how to calculate Earning per Share (EPS) on my previous article and Market Value per Share can get from Colombo Stock Exchange trade Summary. So by easily dividing these mentioned two information’s you can get the Price Earning ratio of that particular company. PE ratio is a piece of information that we can get easily so we will discuss how to use this PE ratio to analysis company financial status which important to investor. Compare PE ratio of your company with
- Previous Years PE ratios of the same company
- forecasted PE ratios of the same company
- Sector PE ratios which your company fall in to (for example if you company is a construction field your sector is Construction and Engineering, I will explain this  Sri lanka Stock Market sector in future)
- Entire Sri Lankan Share market PE Ratio
Compare the PE ratios of two companies in same sector may get good results and you can analysis it very well. High PE ratios show higher earning growth in future and lower PE ratios shows lower earning growth. PE ratio shows some idea about the company’s financial performance but this does not show the entire financial performance. Normally average PE ratio of the market are normally 20 to 25 and this may get differ from the companies to companies and country to country. Sometimes PE ratio can also get negative value and this may be common for the sector too. IF PE ratio of your company you need to extra careful on those shares.
When PE ratio getting gradually higher while share price is same , this will show good performance of company and this is the good opportunity to buy share and most probably this share price will get higher.
The Fundamental analysis method I Mentioned here and previous article may helpful for you to predict company finial performance in current and future market. If you are a sri lanka stock market investor you need to consider none of these mentioned method may 100% accurate and you cannot assure 100% companies performance. But the mention method may helpful for investors to get an idea about the sri lanka stock market performance and the most of the trades done by using this method are having benefit results.