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3 ways to calculate the market profit rate, which one is best for you?

3 ways to calculate the market profit rate, which one is best for you? -1

For stocks that have achieved stable profits, the market earnings ratio is the most commonly used valuation indicator. The market earnings ratio is the ratio of the share price to the profit per share, and the most direct calculation is the net profit for one year by the market value of the stock.

In this case, the stock market value is a deterministic number at a given moment, but there are several optional ranges and calculation methods for net profit. Depending on the choice and method of calculation of net profit, market profitability can mainly be divided into three types.

1. Static market earnings

The method of calculating static market earnings is the total market capitalization divided by the net profit for the last full fiscal year, using the net profit data of the company's latest annual report, which can be obtained directly in the company's financial statements and does not require additional calculations and queries, so the calculation is easiest. The downside is that the timing is lagging behind, and if a fiscal year is already three quarters past the end of the year, it is clearly not appropriate to use net profit data from the previous half of the year to calculate the valuation.

2. Rolling market profitability

Rolling market earnings are calculated by dividing the total market capitalization by the net profit of the last 12 months disclosed, taking into account the performance of the company's latest reports. For example, when a company publishes its quarterly report, you can use the cumulative net profit for the previous three fiscal quarters, plus the net profit for the fourth quarter of the previous fiscal year, to obtain the net profit data used to calculate rolling market earnings. In terms of relatively static market earnings, the calculation of rolling market earnings is somewhat complicated, but it can reflect the performance of the latest forecasts and is more timely and suitable for ordinary investors.

3. Looking ahead to market earnings

THE CALCULATION OF THE PRE-MARKET RATIO IS TO USE THE TOTAL MARKET VALUE TO CALCULATE THE FORECAST NET PROFIT FOR A CURRENT OR NON-CURRENT FISCAL YEAR. This net profit data typically analyzes the average of the company's net profit forecast by analysts. Data for partial financial projections can be consulted within the Futu App.

The advantage of forward market earnings is that it is also the strongest in terms of the company's growth expectations for the next year or several years. But its flaw is that analysts' forecasts of net profit are not necessarily accurate, and the calculated market earnings do not necessarily correspond to reality, and there is a lot of uncertainty.

Disclaimer: The above content does not constitute any act of financial product marketing, investment offer, or financial advice. Before making any investment decision, investors should consider the risk factors related to investment products based on their own circumstances and consult professional investment advisors where necessary.

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