So let me switch colors just to ease the monotony.

It's just a faster way of saying

looks neutral.

Maybe it goes to 2 in 2010.

Are you with me?

One of the viewers pointed out not incorrectly that one definition of return on asset so this whole video's going to be on return on asset that one definition of return on asset, and if you look it up on some of the finance sites or even some finance textbooks, they'll tell you it's net income over total assets.

So a lot of people immediately will figure out the Price to

So in 2013 you'll be making 16.

This is 2009 estimates.

And B is expected to make 4 per share.

That was a bit of a diversion.

Why wouldn't I just pour all of my money?

The price here, Company B was more.

If I'm paying 10 today for 2 of earnings in 2009, the Price to Earnings of 5 for Company A.

That's still way more expensive than most companies.

You're making 10 , and that's just to connect the dots.

It was 10.

So it has a Price to Earnings of 50.

Profitable.

And let's say Company B made 5 per share. 5 EPS, Earnings Per Share.

But when you lower the Price to Earnings you are increasing the Earnings to Price.

And you're going to pay a lower Price to Earnings ratio if the company isn't growing.

Price to Earnings ratio.

Divided by 0.35.

If it's growing 100 a year for 20 years, this is actually a very good deal.

And the earnings on the bank account in that year were 200.

So a plus b have to be equal to 50.

So just when you look at it superficially right here, when you take Price to Earnings and actually just as a little aside, whenever someone says the Price to Earnings ratio is 10, or the Price to Earnings for Company B is 4, the first thing you should ask is, what earnings are you using?

One is, you could kind of flip this.

So let's look at them over the course of one year.

So notice.

Invest financial assistance, but also management assistance.

What I want to do here is focus on valuation and see whether the price to earnings ratio holds up to scrutiny in this situation, where you have an identical asset but very different capital structures.

Maybe Abby made 50 and Ben earned 0.

And we can eyeball it right here.

Because when someone says earnings, are those the earnings last year?

Let's say that we don't know that they're truly equal.

But you say, no but these guys are growing so fast in 2011 they're going to make 4.

The reason why you are willing to pay a higher Price to

And what's left over for the equity?

And they were male and female 18 30 and they were casual fans.

Books that might sell 100 copies a year, 1,000 copies a year.

I can do a Price to Earnings on my bank account.

But this could happen.

This was the earnings of the company last year, or the last 12 months.