Educational articles

What are the limitations of the Price-to-Earnings (P/E) ratio?

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The Price-to-Earnings (P/E) ratio is one of the most commonly used valuation metrics in finance. It measures how much investors are willing to pay for each unit of a company’s earnings: P/E = Market Price per Share ÷ Earnings per Share (EPS) Although it is simple and widely used, the P/E ratio has significant limitations. Relying on it alone can lead to incorrect conclusions about a company’s true value or financial strength. Earnings Are Based on Accounting, Not Future Performance …

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Why ASX tech sector has been falling?

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The Australian tech sector, as measured by the Information Technology sector (XIJ) on ASX has fallen 43% from its peak on 31 July 2025. What could be the real reasons behind this? Global Tech Sell-Off Spilling Into Australia Australian tech doesn’t trade in isolation. When US tech falls — particularly the Nasdaq and mega-cap growth stocks — Australian tech usually follows because: Global fund managers allocate to “growth” as one asset class. If they reduce exposure to tech globally, they …

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Are higher interest rates good or bad for banks?

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Higher interest rates can be both good and bad for banks, and the overall impact depends on how fast rates rise, how high they go, and the economic conditions surrounding the increase. How banks make money Banks primarily earn profits through net interest income: They pay interest on deposits and other short-term funding. They earn interest on loans and longer-term assets (mortgages, business loans, bonds). The difference between what banks earn and what they pay is called the net interest …

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Who is the most affected by high inflation?

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This week saw the Reserve Bank of Australia (RBA) increase interest rates due to stubbornly high inflation. Higher interest rates for the short-term are seen as a necessary medicine to ensure that inflation is not high in the long-term. So who would be affected the most if inflation was to remain high? The fact is that high inflation does not affect everyone equally. It acts like a regressive tax, hitting hardest those with the least flexibility to adjust their income, …

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Why EPS growth is important to the share price?

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EPS growth is important to the share price because it sits at the centre of how investors value a company, how markets form expectations, and how long-term returns are created. EPS represents owners’ earnings Earnings per share tells investors how much profit belongs to each share they own. Shares represent ownership EPS represents the profit attributable to that ownership Higher EPS means greater economic value per share If EPS does not grow over time, the value of owning a share …

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