DEFINITION of Price-Earnings Relative Price-earnings relative refers to the price-earnings ratio of a stock divided by the price-earnings ratio of a broader market measure. The price-earnings ratio, often written as P/E, is equal to a stock’s or broad market’s market price divided by a measure of the stock’s or market’s earnings. There are many methods
What Is Price Elasticity of Demand? Price elasticity of demand is a measurement of the change in the consumption of a product in relation to a change in its price. Expressed mathematically, it is: Price Elasticity of Demand = Percentage Change in Quantity Demanded ÷ Percentage Change in Price Economists use price elasticity to understand
What Is Price Improvement? Price improvement involves achieving a trade at a better price than the price quoted at the time an order was placed. It would mean finding a higher bid price if you are selling an asset, or a lower ask price if you are buying an asset. While many brokers tout their
What Is Price Leadership? Price leadership occurs when a leading firm in a given industry is able to exert enough influence in the sector that it can effectively determine the price of goods or services for the entire market. This type of firm is sometimes referred to as the price leader. This phenomenon is common
What Is a Price Level Adjusted Mortgage (PLAM)? A price level adjusted mortgage (PLAM) is a graduated-payment home loan. The principal adjusts for inflation. Under this unique type of mortgage, the bank or lender will not change the interest rate but will revise the homebuyer’s outstanding principal based on a broader inflation rate that is derived
What Is a Price Multiple? A price multiple is any ratio that uses the share price of a company in conjunction with some specific per-share financial metric for a snapshot on valuation. The share price is typically divided by a chosen per-share metric to form a ratio. Price multiples enable investors to evaluate the market
What Is Price per Flowing Barrel? In finance, “price per flowing barrel” is a metric used to estimate the value of a company that produces oil and gas. This calculation is performed by dividing the company’s enterprise value (EV) by the number of barrels it produces in a typical day. Enterprise value measures a company’s
What is Price Scissors? Price scissors is a term that refers to a sustained change in the terms of trade between different goods or classes of goods. Often this can involve a country’s drop in the price received for a developing economy’s agricultural exports, while its manufactured goods imports rise in price or remain relatively
What Is Price Sensitivity? Price sensitivity is the degree to which the price of a product affects consumers’ purchasing behaviors. Generally speaking, it’s how demand changes with the change in the cost of products. In economics, price sensitivity is commonly measured using the price elasticity of demand, or the measure of the change in demand
What Is Price Skimming? Price skimming is a product pricing strategy by which a firm charges the highest initial price that customers will pay and then lowers it over time. As the demand of the first customers is satisfied and competition enters the market, the firm lowers the price to attract another, more price-sensitive segment
