Why the price/earnings ratio is flawed

The price/earnings ratio is a quick and simple way to look at a company’s valuation, and is widely used by private investors.

However, you do have to be careful when you use it. The ratio has several flaws and can be seriously misleading if you don’t use it properly.

In this video, I explain how the ratio works and why it can mislead.

• See also: EV/Ebit – boring title, sexy ratio

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Video tutorial - why profit margins matter

Why profit margins are really useful

In this video, Ed Bowsher explains how to calculate a company’s profit margin, why it is the best way to evaluate profitability, and how you can use it when analysing a company.

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  • G J M

    With 350k invested in H-L (Wife and self in ISA Vantage) mostly shares +some ETFS,Unit trust & some I.T.s, where is the cost effective place to hold the investments?