Compare the growth rates of apple and alphabet Inc to their P/Es by plotting the

Question

Compare the growth rates of apple and alphabet Inc to their P/Es by plotting the P/Es against growth rate in a scatter diagram. Apples growth rate is 35.76% Alphabet Inc growth rate is 13.59% Apples dividends totaled 11,045,925,000 Alphabets Inc totaled $0 Apples plowback ratio is 79.93% Alphabet incs is 100% Apples do end payout ratio is 20.07% Alphabet incs is 0% Apples ROE is 44.74% alphabets is 13.59% Apples shares outstanding 5,578,750,000 Alphabets outstanding shares 687,350,000 Apples dividends per share $1.98 Alphabets dividends per share $0 Apples net income $53,394,000,000 Alphabets net income $16,348,000,000 If you could explain how to get P/E as well as answer the question it would be appreciated.

Explanation / Answer

Solution:

P/E is the price earning ratio which is nothing but the Price an investors is ready to pay to earn $1 of profit

Hence P/E ratio = MArket price /Earning per share

EPS = NEt income /No of shares

Apples's first EPS = 53394000000/5578750000

= 9.57

Alphabets EPS = 16348000000/687350000

= 23.78

dividend per share of apple = 1.98

Alphabet = 0

ROE apple = 44.74%

Hence the equity = Net income /.4474 = 53394000000/.4474 = 119342869915

Hence the market price of apple = 119342869915/no of shares = $21.39

Similarly the alphabet= 16348000000/.1359 = 120294334069

Market price = 120294334069/No of shares = $175

Hence the P/E Apple = 21.39/9.57 = 2.235 is the P/E ratio

Alphabet = 175/23.78 = $7.36

Analysis :

Since the P/E ratio of Apple is lesser than the Alphabet that indicates that the performance of apple ltd is better because the investor has to pay only 2.235 to earn $1 and whereas the alphabet investor has to shell out 7.36 from the pocket to earn $1 income .

Thank you.

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