Date of Award

6-1968

Degree Type

Master's Essay - Restricted

Degree Name

Master of Business Administration (MBA)

Department

Business Administration

Abstract

The number of individuals owning common stock in the United States has been steadily increasing. At the present time it is estimated that there are at least 20 million stockholders, many of whom have small portfolios. These stockholders have to choose between some 25,000 different issues. It is obvious that the investor needs some basis to compare the various alternatives. One of the most important comparative tools used is the price/earnings ratio, or the relationship of market price per share to reported earnings per share. The advantage is that it permits an immediate comparison of the prices of an unlimited number of stocks in terms of a common earnings base. Evidence of the superior position of this ratio as a tool is in the daily use by professional investors, its widespread publication, use by investment bankers in pricing new issues, and its incorporation in most theoretical and empirical investigations of the determinants of stock prices. Little has been written about the price/earnings ratio in relation to the small investor however.

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