Re-rating your price earnings (P/E) multiple

Abstract

Price earnings (P/E) multiples are commonly used by corporate financial managers as a measure of corporate performance and as a measure of corporate value. With this article an analysis of 74 companies is presented. Each company significantly changed its P/E multiple over a period of three years. The analysis shows that a 2% improvement in operating profit margin or a 2% reduction in financial risk achieved a 1% improvement in the P/E multiple. To a lesser extent, an improvement in the current ratio and in net asset value also resulted in an improved P/E multiple.