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

How is it that you make money?

Profitable.

They're going to make 0.35 in 2009 as well.

The price here, Company B was more.

It was 10.

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

So a plus b have to be equal to 50.

Have you seen the latest figures, children?

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

And the first thing we need to figure out is, what is our revenue model.

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

So notice.

Invest financial assistance, but also management assistance.

And B is expected to make 4 per share.

So this is trailing 12 months.

The price to 2008 earnings for Company B is 4.

Maybe Abby made 50 and Ben earned 0.

And we can eyeball it right here.

You could also have forward earnings.

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?

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

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

We talked about the potential ways to charge

We learned that in our first video.

Well, look at some old ways, some ways that we'd already cracked.

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

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

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

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?

So the price would be 100.

Another type of revenue model is licensing.