<abstract xmlns="http://www.w3.org/1999/xhtml"><p> We examine the components of equity returns on the Polish capital market. To analyse the underlying complexity of returns we took into consideration the model designed by Leibowitz (1999). This model captures three factors: dividend yield, expected growth in earnings and expected change in price-to-earnings (PE) ratio. We applied this model to analyse the average discount/premium not only to particular shares but to market averages as well. Firstly, we examined the variation of PE across the companies (as adapted from Penman (1996)) to analyse the average rate of return and their striking distance of individual stocks from a ‘normal’ level. Then we checked the transitory earnings in the portfolios of high PE, whereby a fall in current earnings relative to sustainable level of earnings leads to a transitory high PE ratio. We expect that the effect of transience in current year earnings can be significant. Lastly, we analysed the individual companies in order to check what percentage of companies give a “correct” signal about future prospects.</p></abstract>

We examine the components of equity returns on the Polish capital market. To analyse the underlying complexity of returns we took into consideration the model designed by Leibowitz (1999). This model captures three factors: dividend yield, expected growth in earnings and expected change in price-to-earnings (PE) ratio. We applied this model to analyse the average discount/premium not only to particular shares but to market averages as well. Firstly, we examined the variation of PE across the companies (as adapted from Penman (1996)) to analyse the average rate of return and their striking distance of individual stocks from a ‘normal’ level. Then we checked the transitory earnings in the portfolios of high PE, whereby a fall in current earnings relative to sustainable level of earnings leads to a transitory high PE ratio. We expect that the effect of transience in current year earnings can be significant. Lastly, we analysed the individual companies in order to check what percentage of companies give a “correct” signal about future prospects.

The PE Ratio and the Predicted Earnings Growth – the Case of Poland

Wrocław University of Economics Faculty of Economic Sciences Department of Mathematical Economics Komandorska 118/120, 53-345 Wrocław, Poland

Wrocław University of Economics Faculty of Management, Computer Science and Finance Department of Public and International Finance Komandorska 118/120, 53-345 Wrocław, Poland

Folia Oeconomica Stetinensia

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

{"article-title":"The PE Ratio and the Predicted Earnings Growth \u2013 the Case of Poland"}

We examine the components of equity returns on the Polish capital market. To analyse the underlying complexity of returns we took into consideration the model...

The PE Ratio and the Predicted Earnings Growth – the Case of Poland

Published Online: Dec 30, 2015

Page range: 127 - 138

DOI: https://doi.org/10.1515/foli-2015-0022

Keywords
cost of capital, PE ratio, transitory earnings

© University of Szczecin

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

The PE Ratio and the Predicted Earnings Growth – the Case of Poland

Published Online: Dec 30, 2015

Page range: 127 - 138

DOI: https://doi.org/10.1515/foli-2015-0022

Keywordscost of capital, PE ratio, transitory earnings

© University of Szczecin

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
cost of capital, PE ratio, transitory earnings