There's kind of a general rule of thumb that if a company is not doing anything, it's just stable, safe, not moving up or down, that a fair or a cheap Price to Earnings is 10 times this year or last year.

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.

Profitable.

It's closer to a bank account that Company B, sure it made 5 in earnings, but that is risky.

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

So a plus b have to be equal to 50.

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

So that's a little bit of a taste of why someone might realistically, in this case, pay a higher Price to Earnings for safety.

But I just want to give you the gist of what's happening.

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

So notice.

Invest financial assistance, but also management assistance.

We talked about the potential ways to charge

Maybe Abby made 50 and Ben earned 0.

And we can eyeball it right here.

And when people talk about earnings of a company, this is what they're talking about.

And what's left over for the equity?

So let me switch colors just to ease the monotony.

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

What does that tell us?

So based on that, this looks cheaper.

It's just 10 because one, this is a nice round number.

Travel agencies' profits soared.

So let me write this down.

You can probably guess.

This 2 were my earnings.

Is it a license or subscription model?

Maybe the people who were renting, they were working odd jobs, or they didn't have a steady income.

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

Everything on this line would be a valid combination of

So now we add an interesting line.

The first thing you have to figure out is what's the revenue stream

We learned that in our first video.

The company's profitability improved.

This is really important to pay attention to, because so many people say, oh, a company made this much.

You got him stabilized?

We are assuming a very simple world, were the is no taxes, we have no debt, we have no intrest or things

In this case, we use last year's earnings.

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

Anyway, going back to Price to Earnings, we calculated the

That's day 0.

Abby earned 10 more than Ben.

And that's because they have the same exact asset.

Let's compare EBlT to operating profit.

And why don't you like them as much?