About a year ago, Simon and I had lunch. I was about to go on holiday and there may have been some wine. During the course of the conversation Simon mentioned something about Sygnia and the price-earnings ratio. I didn’t really have any idea what he was talking about, so I made a note to turn it into a Fat Wallet episode. Since that lovely encounter, we’ve had so many Fat Wallet questions that just always seemed more pressing.

I regret not getting to this sooner, because it turned out to be super interesting. The price-earnings ratio is a way to work out how many years it will take to make your money back when you buy a share. That, along with a company’s net asset value (NAV) and cash flow can help you work out whether a share is cheap or expensive.

This is one of those episodes where you can practically hear the gears grinding. Hopefully you got the “A-ha!” moment too.

Kris