Book Value Per Common Share

What Does Book Value Per Common Share Mean?

A measure used by owners of common shares in a firm to determine the level of safety
associated with each individual share after all debts are paid accordingly.

Formula:

Investopedia explains Book Value Per Common Share

Should the company decide to dissolve, the book value per common indicates the dollar value
remaining for common shareholders after all assets are liquidated and all debtors are paid.

In simple terms it would be the amount of money that a holder of a common share would get if a
company were to liquidate.

Price-Earnings Ratio - P/E Ratio

What Does Price-Earnings Ratio - P/E Ratio Mean?

A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:

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).

EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the
estimates of earnings expected in the next four quarters (projected or forward P/E). A third
variation uses the sum of the last two actual quarters and the estimates of the next two quarters.

Also sometimes known as "price multiple" or "earnings multiple".

Investopedia explains Price-Earnings Ratio - P/E Ratio
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.

The P/E is sometimes referred to as the "multiple", because it shows how much investors are
willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20,
the interpretation is that an investor is willing to pay $20 for $1 of current earnings.

It is important that investors note an important problem that arises with the P/E measure, and to
avoid basing a decision on this measure alone. The denominator (earnings) is based on an
accounting measure of earnings that is susceptible to forms of manipulation, making the quality of
the P/E only as good as the quality of the underlying earnings number.