Is PEG Ratio a Better Tool for Valuing the Companies as Compared to P/E Ratio? (A case study on selected Automobile Companies) Bharat Kumar Meher*, Saurabh Sharma** appreciation. However, the selection of a security for an appropriate investment is quite a dificult task on the part of the investors. Every investor has to make certain analysis before investing his funds on a security. Analysing the P/E ratio is one of the most common techniques used by the investors in the selection of security or securities on which investment can be made. P/E ratio is a good measure of the level of stock market valuation. Effective investment decisions can be taken if the ratio is calculated properly.Companies are rarely equal. Comparisons between those companies which are differentin terms of their products, services, time periods etc.may be misleading. In such a case P/E ratio enables to bring all companies to a common platform which can ease in comparisons. Recently some analysts suggest that P/E ratio is not an appropriate measure for valuing the companies of automobile sectors. So they shift to a newly innovated ratio i.e. PEG method. In order to assess the effectiveness of PEG method over P/E, it is necessary for the readers to know about the P/E and PEG method, its calculation and its application. P/E Raio P/E ratio means price to earnings ratio. It is an equity valuation multiple. It is calculated by dividing the market price per share by earnings per share (annually). P/E where P/E = Price-Earnings Ratio * Research Scholar,School of Business & Commerce, Manipal University, Jaipur, Rajasthan, India ** Assistant Professor in Commerce,School of Business & Commerce, Manipal University, Jaipur, Rajasthan, India. E-mail: drsaurabh.sharma@jaipur.manipal.edu Abstract The securities in the capital markets can be analysed with the help of Fundamental Analysis or Technical Analysis or both. As for many small investors, technical analysis is a complex tool to be used for analysing the securities; they basically use fundamental analysis in formulating their effective investment strategies. Fundamental Analysis includes various tools and techniques for making analysis of various securities in which Ratio Analysis is one of them. Investors emphasize on one important ratio i.e. P/E Ratio to have a better understanding on the future growth of a company. P/E i.e. Price Earnings Ratio is calculated by dividing market(stock) price per share by its earning per share. This research paper represents a brief note about P/E and its application in making certain investment decisions. This paper also attempts to focus on a new ratio i.e. PEG innovated by some inancial analysts to analyse the growth position of various automobile companies and again a critical analysis of inancial statements of selected automobile companies is done to assess its P/E and PEG Ratio. To conclude this paper a comparison is made between the P/E and PEG Ratio to determine whether the newly innovated PEG Ratio is more effective over P/E Ratio. Keyword: EPS, P/E Ratio, PEG Ratio, Valuation Introducion Stocks are the inancial assets from which an investor can get returns in the form of dividend and in the form of price Article can be accessed online at http://www.publishingindia.com