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

So let me switch colors just to ease the monotony.

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

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

It's just a faster way of saying

Profitable.

So a plus b have to be equal to 50.

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.

Are you with me?

looks neutral.

Maybe it goes to 2 in 2010.

The return on the investment will be high.

Invest financial assistance, but also management assistance.

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 we can eyeball it right here.

Maybe Abby made 50 and Ben earned 0.

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

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

And B is expected to make 4 per share.

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

So notice.

And what's left over for the equity?

That's still way more expensive than most companies.

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

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

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

That was a bit of a diversion.

The earnings I just said, this is actually what happened to the company.

The company's profitability improved.

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

Everything on this line would be a valid combination of

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

So this is trailing 12 months.

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

The price here, Company B was more.

It was 10.

So it has a Price to Earnings of 50.

It looks like our profit is jumping all over the place.

And the first one is that this whole idea about revenue stream, Steve, I get it.

Abby earned 10 more than Ben.

And why don't you like them as much?

So the price would be 100.

Another type of revenue model is licensing.