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Forward PE Ratio | (Formula, Examples) | Excel Calculation - YouTube
Channel: WallStreetMojo
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hello everyone hi welcome to the channel
of Wallstreetmojo Friends today we are
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going to learn a topic that is a forward
p/e ratio what are the most important
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ratio which every analysts they consider
for valuation purpose or for analyzing
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you know the EPS any price of the share
so every stakeholder is also interested
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in this the forward p/e ratio is the
price per share divided by the
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forecasted EPS over the next 12 months
so there is only one difference I mean
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what is the next thing that we are going
to study is what is the forward p/e
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ratio this is our next thing now
there is only one difference between p/e
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ratio of a company and a p/e ratio of a
firm of the same firm the difference is
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only the earnings that we use to
calculate in p/a ratio so we use the earnings
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of previous years okay however in case
of the forward P/E we use the projected
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earnings of them next year that's the
only difference this is EPS normal and
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this is f the the forward EPS basically
over here the forward projected EPS has
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been used to calculate the p/e ratio so
like the p/e ratio the forward p/e is
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also a great measure of whether a
company's financial health financially
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it is healthy or not but you know every
investor need to look at the bunch of
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the financial ratios along with the
forward their price earning ratio to
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come up with the conclusion that whether
they should invest in a company or not
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now will understand the formula see the
formula for the forward P/E earning ratio
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is just an extension of the formula of
the p/e ratio the formula is quite
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simple that it's just the price per
share divided by the EPS forecasted of
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the next 12 months okay the 1st
component is the market price per share
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as per the market price at which the
potential shareholders would buy the
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stocks of the company and can change
over time so at different times the
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market price would vary we need to
divide the market price bar by the
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number of outstanding shares of the
company to find out the market price per
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share the 2nd component is the
projected EPS so as an investor unit you
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can look at the different publication now or
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you can you can hire a financial analyst
and and take her or his help to find out
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an estimate so this the the forward EPS
is your projected earnings
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/ the number of outstanding shares of
the company okay so using this formula
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you you know using this formula will
also help the investor to know how much
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a company will earn per share and they
can use the same formula to find out
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about the forward p/e ratio too now let's
get into the example zone so that you
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will get some idea regarding the same
now let's take two example of forward of
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one let's see the first one would be
simplistic and where everything would be
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given the second example if it's little
bit complex the forward p/e ratio let's
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say there's a Jill is basically is a new
in stock investing and she wants to know
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whether she would invest in let's say
bourbon & Company bourbon Limited a
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biscuit company and she so she has
basically asked his brother who's in
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stock investments for quite a while her
brother Jack advises that you know she
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should basically look at the bunch of
the financial ratio Jill figured out all
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the ratios except the forward price
earning ratio so let's help Jill find
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out the ratio by using some of the
information that we have price which she
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found the price the market price of the
stock is a the total market price of the
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stock is let's say 1 million the number
of shares outstanding okay is a 1 lakh
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let's say and the projected earnings the
projected earnings is for the next year
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this is we are talking about the next
year let's say is 5 lakh so we'll
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calculate the forward p/e ratio by
splitting the example you know into two
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parts first we'll calculate the market
price for share and then this is this is
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the Not the price this is actually the
you can say the market cap okay so the
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first is the foremost thing that we are
going to do is you know you calculate
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the market price per share and then
we'll find out the forward EPS so the
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market price per share is MPs is equal
to your total market cap divided by the
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number of shares so in this scenario we
had something that's called 1 million as
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the market cap divided by the number of
shares that is a 1 lakh so that gives us
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our p0 or MPs as 10 to find out the
forecasted EPS we need to use the
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formula or that is the forward EPS okay
F EPS which is your projected earnings
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per share divided by the number of
outstanding shares so your projected
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earning is 5 lakh divided by the total
number of share 1 lakh that gives us an
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EPS of 5 so this is 10 over here and
this is 5 price and the EPS right so
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finally based on this you can calculate
your forward p/e ratio that is forward
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p/e which is your market price per share
divided by F EPS which will give you 2
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per share let's take another example
quickly let's say mr. Amit wants to
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calculate the forward P/E earning ratio of
buddha jeans limited and they know the
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issue he doesn't have all the
information he only knows the p/e ratio
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of the company he only knows that ah and and also the he knows something that is
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called EPS now he also has a consensus
report that says that the projected
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earning I mean just adding P/E that has
the projected earnings of the company
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would be 1 million the next year they're
coming your help you know you need to
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help out the we need to help out
amethyst we'll find out these forward
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price earning ratio by using the formula
so let's say the PE he details that he
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had was the PE ratio was 4 the EPS
that details he had was 15 per share and
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the number of outstanding shares was 1 lakh okay
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so we have been given with the p/e ratio
and the EPS right and you know we we can
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find the p/e ratio with the help of
market price per share that is mps
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divided by the EPS right so we know that
the p/e ratio is over here is 4 and EPS
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over here is 15 so MPs is empty so it's
as simple as that it's 15 into 4 that's
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60 right so that should be the share
price right 64 share now to find out the
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forward price earning ratio we need to
calculate the last piece of information
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as the forward EPS that is F EPS right
so to find out the forward EPS will use
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the formula as F EPS is equal to your
earnings divided by the number of shares
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right now forward EPS is equal to your
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earnings which is 1 million as which is visible above
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divided by the total number of shares
which is 10,000 so our final
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answer is going to be 1 million divided
by 1 lakh that is 10 per share so we
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have all the information that we need to
find out for the forward PE earning ratio
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which is the market price that was 60
that we just found divided by the 10
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that is the forward PE which will give us
our forward EPS which will give us our
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forward p/e as 6 so this is our forward
EPS right I hope you have got the
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example and now this is a scenario for
the forward p/e ratio of Amazon the
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Amazon current share price is 1586.51 as on 20th
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March the quarter ending 8.31 and 15.39
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so the forward EPS is 8.314 December
2018 and 15.39 for
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December 19 so the forward p/e ratio
calculation is going to be the share
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price divided by 2018 forecasted EPS and
2019 forecasted EPS is 190.91
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and 103.08 this is the calculator you know that you can
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use and analyze let's say the market
price is 1000 and the projected
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earning per share is let's say 10 so
your forward p/e
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has to be 100 now let's reduce the
earning so as earning reduces your
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forward p/e ratio will increase and as
your market price will increase your use
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as your market price will reduce your
forward p/e should also reduce so this
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is the calculator that you can use and
make some good conclusions out of the
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same and happy learning thank you
everyone
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