Saturday Morning

On Saturday morning I like to finalise my figures for the week, relax and read the bulletin boards and then do a little research. Today I was looking at what P/E ratio is and how it helps.

How to Find the Price to earnings Ratio of a stock

This ratio is simply a mathmatical expression for how much you are paying for each pound the company earns every year.

For example:

Company A makes £1,000
Company A has issued 100 shares of stock
Company A stock is trading for £50 a share
The P/E is simply the earnings per share divided by the price per share.

So,

£1,000 (Earnings) / 100 (# of shares) = £10 per share.
Company A had £10 in profit for every share it has issued.
This is the Earnings part of the Price to Earnings Ratio

£50(The Price of each share) /£10 (The Earnings of Each Share) = 5

Company A would have a P/E of 5.

I then went to the LSE site and found the P/ E for each of my shares and recorded them on my share spreadsheet. The P/Es varied between 7.7 and 200 and 2 were n/a as they weren't making any profit. The non profit making shares are my more exciting AIM shares where perhaps i will make some money if they shoot up rapidly. The others are where I have invested for dividend and modest growth but with perhaps a little more security. So of the 7 shares I currently have, 2 are not making any money and 4 are. 1 is French so I don't have the same figures to hand. So I have a ratio of 2:1 in security versus risk. I don't know whether this is good or not but it is a start.

After yesterday I decided to caancel my BKIR order and use all the money from my SRES deal to increase my holding of WEST and buy some shares in LDP Leeds Petroleum. LDP was tipped by Motley Fool as a share capable of doubling in price soon. We shall see. I emailled SRES and asked when their final results would be published and received a nice email from the Company Secretary saying probably the beginning of December so that is why I increased my holding. If I am right then I should make some money quickly. If I am wrong then I will have to wait a lot longer!