I am trying to understand the following results from a company (in India). What is a PE ratio and return on average equity?

PE ratio 41.56
EPS (Rs) 29.68
Sales (Rs crore) 1,357.97
Face Value (Rs) 10
Net profit margin (%) 7.22
Last dividend (%) 20
Return on average equity 9.56

PE ratio is price earnings ratio and is a mathematical calculation of Current share price divided by earnings per share (EPS).

The main reason for PE ratio is to indicate that a share is selling at so many times its actual or antipated earnings. Earnings are profits (bottom line number), not revenue. PE ratio enables the shares of one company to be compared with those of another, particularly within the same industry.

Normally, if one company has a higher PE ratio than the other within the same industry, the one with too high of a PE ratio may be over valued and may be due for a corection downwards. Viceversa, a lower PE than the industry PE might indicate an undervalued company and might be considered a good buy.

Return on average equity - the closest I could find is return on common equity. This is Net earnings divided by equity. The equity portion is normally sum of value of common shares issued and outstanding (not market value, but the value assigned for financial statements purposes), contributed surplus, retained earnings and any foreign excahnge adjustments.

For details on each of these terms, you may want to google. The return on equity shows the amount of earnings that were produced for each dollar or Rupee invested by the company's common shareholders. This measures the management's effectiveness in managing profitability relative to the equity capital of the company.

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Dimple2001