Finrepo » Company's Financial Accounting » Financial Ratios: Formulas and Interpretation » Price-to-Earnings Ratio Without NRI (Non-Recurring Items)


Price-to-Earnings ratio without NRI

P/E Ratio without non-recurring items

DEFINITION:

The PE Ratio without NRI (Price-to-Earnings ratio without NRI) is a financial ratio used to compare a company's market price to its earnings per share (EPS) without non-recurring items (NRI).

PE Ratio without NRI:

  • measures the valuation based on the earning power of the company;
  • is a more accurate indication of valuation than normal PE Ratio.

What does NRI or non-recurring item stand for? NRI or non-recurring item is:

  • any reported item in the income statement which is not part of the core operations of the business;
  • infrequent gain or loss that is reported in the company's financial statements;
  • non-recurring income or gains from one-time non-recurring event;
  • one-time expenses and revenues that are not included in the calculation of operating income (EBIT).

As an example, non-operating income (income that is distinct from income derived from core business activities), such as, some property or major asset sale, can affect on Regular P/E Ratio. Selling a major asset refers to an event that is unlikely will happen again and again, thus, this is non-recurring item. Investors prefer to exclude such non-recurring items from P/E ratio calculations in order to know a regular operating income. Thus, P/E Ratio without NRI gives a more accurate valuation that normal P/E ratio.

FORMULA for calculations:

PE Ratio without NRI = Share Price / Earnings per Share without NRI


Find also: P/E RATIO'S RESULT INTERPRETATION AND EXAMPLE

FIND MORE:
Fundamental Analysis Indicators

  previous page   next page