Guide to Analysing Companies

Price/earnings ratio
The market price of a share divided by its earnings per
share. When divided by its reported earnings, it is known as
the historic price/earnings (p/e) ratio; when divided by its anti-
cipated earnings, it is known as the prospective p/e ratio. The
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PRICE/EARNINGS RATIO
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ratios listed in newspapers and other such media are usually
historic.
The p/e ratio is a measure of the number of years it will take
for a share purchased now to repay its purchase price to an in-
vestor if all its earnings are paid out as dividends. Although
other measures drift in and out of favour according to the fashion
of the time, most investors keep at least one eye on p/e ratios.
That said, the average ratios for different markets vary widely. In
Tokyo, where investors place great store on capital gain, p/e
ratios are comparatively high; in Anglo-Saxon countries, where
most investors expect to receive at least part of their reward in the
form of dividends, p/e ratios are generally lower (although even
there they have tended to rise because some big companies, such
as, until recently, Microsoft, still shun dividends).
Primary dealer
The limited number of financial institutions that are authorised
to buy newly issued government securities directly from the
Treasury in the United States and the UK. These primary
dealers are also secondary ones in that they make markets in
old government securities as well. In most countries, govern-
ments offer new securities to the primary dealers through a
form of auction.
Primary market
A market in which financial instruments are sold when
they are first issued; that is, a market in which the proceeds from
the sale of the securities go directly to the issuer of the securities
(be it a government issuing sovereign debt or a company
issuing new shares). (See also secondary market.)