Management Dynamics

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Relative P/E-ratio valuation plays an important role among investment research analysts and advisors. The P/E ratio relates to the price paid to current earnings. Due to its simple computation for various stocks and also, for making comparisons between various stocks, it is widely accepted. The research question being addressed is to find out the determinants that differentiates P/E ratio of one company from the other in a specified time period and over a period of time. A P/E-ratio valuation model can be viewed as a technically simple model, using company's earnings as its value driver, and typically being dependent on having access to stock market data for comparable companies. This analysis is concerned with the importance of differences, pertaining to valuation of relevant variables (measures of profitability and capital growth), between the companies. P/E ratio also acts as a proxy to risk and growth of a firm and is much likely to reflect market moods and perceptions.
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