So let me switch colors just to ease the monotony.

It's just a faster way of saying

looks neutral.

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

So in 2013 you'll be making 16.

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.

Price to Earnings ratio.

Divided by 0.35.

Obviously a 6 Price to Earnings of 20 times 2013 earnings isn't as good as a 6 Price to Earnings of 2010, because earnings in the future aren't worth as much as earnings today.

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?

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

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.

My son has been successfully subdued, so I think this is a good time to learn about the Price to Earnings ratio.

But here, the Price to Earnings for 2009 then becomes let's see.

And maybe this guy's even growing faster, so maybe they're being conservative by only giving this guy a 10 price to earnings.

So growth is the other reason why you're willing to pay a higher Price to Earnings ratio.

Maybe it goes to 2 in 2010.

But if you look here, by giving the same price to earnings, because they're the same business.

So you say, they both deserve a price to earnings of 10.

That's 0.35 per share of EPS.

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

Now what's our mantra of this day and age I wonder?

Why would someone be willing to pay a Price to Earnings ratio of 10 for Company A and pass up, or maybe not want to buy, Company B, even though they're paying only a Price to

So something very interesting is happening.

This is 2009 estimates.

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

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.

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?

Which it seems like a really good deal, because now the

And I think this is very obvious to you, but let me write that down.

They need to understand the external environment and they need to come in.

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

It was 10.

So it has a Price to Earnings of 50.

And we also assign a value to the company given by the operating revenue.

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.

But then when you look at the current earnings, they look similar.

So the debate on whether you're willing to pay When you look at a Price to Earnings ratio of 100, a lot of people have a knee jerk reaction.