From the investor point of view the price earning ratio was the most easiest way to judge either the company was producing the good profit or not and people think that if the price earning ratio was increasing so the companies growth was increasing to, but in real have no significant relation with each other, price earning ratio and growth, in past many researches have done study the behavior of growth with different variable like p/e ratio, dividend payout ratio, e/p ratio and many more. In this research p/e ratio used to test relationship between the p/e ratio and growth of a company so this research was to give idea to all investor that there was not a significance relation between these two variables and growth was not dependent to price earning ratio.

The core idea of this study was to find out that was there any correlation between p/e ratio and corporate growth, in context of past several researches it was clear that there was not any relation between p/e ratio and corporate growth in long run, but there was a relation.

The most general measure of how expensive a stock is. The price / earning was equal to market capitalization of a security divided by its profit after tax for a period of 12 months, usually the follow-up period, but sometimes the current period or forward. The value was the same whether the calculation was performed for the entire company or on a basic share.

For example, the price / earning ratio of company with a price of $ 10 per share and earnings per share of $2 was 5. The higher the price / earning ratio, the higher the market was ready to pay for each dollar of annual income. Companies with high price / earning ratios were more than “risky” investments which have low price / earning ratio, and a maximum price / earning ratio indicate high expectations. Comparison of the price / earning ratios was most valuable for firms in the industry. Price earning ratio of last year would be real while price earning ratio for future year and this year might be estimated, but in each case the “p” in the expression was the current price. Companies that were not profitable do not have a price / earning at all. Price earning ratio also called earning multiplier.

In past there were so many work on price earning ratio some of these were Nicholas Molodovsky (1953) discussed pe ratio in his paper A Theory of Price-Earnings Ratios, Lewis C. Wilcoxen (1955) in The Price-Earnings-Variable Characteristicsm, M. j. gorden (1959) in his paper Dividends, Earnings, and Stock Prices, Sanford L. Margoshes (1960) Price Earnings Ratio in Financial Analysis …. Its Use and Abuse, Joseph E. Murphy, Jr. and Harold W. Stevenson (1967) in Price Earnings Ratios and Future Growth of Earnings and Dividends, Earl M. Foster (1970) in Price-Earnings Ratio and Corporate Growth and Price-Earnings Ratio and Corporate Growth: A Revision, William Beaver and Dale Morse (1978) in What Determines Price-Earnings Ratios, Darryl Craig, Glenn Johnson, Maurice Joy (1987) in Accounting Methods and P E Ratios, Walter R. Good (1991) in his paper When were Price Earnings Ratios Too High Or Too Low, Patricia M. Fairfield (1994) in PE, PB and the Present Value of Future Dividends, W. Edward Bell (1958) in his paper, Martin L. Leibowitz and Stanley Kogelman (1990), Martin L. Leibowitz and Stanley Kogelman (1994),Martin L. Leibowitz (2002) The Levered P-E Ratio, Lewis C. Wilcoxen (1955) The Price-Earnings-Variable, and James D. McWilliams (1966) Prices, Earnings and P-E Ratios

Economic growth was a expression used to indicate the raise of per capita gross domestic product (gdp) or other measure of cumulative income. It was over and over again measured as the rate of change in gdp. Economic growth refers simply to the quantity of goods and services produced

There were many ways to find out the growth of any firm from which some techniques were dividend discount model, sustainable growth rate, assets revaluation, profitability, earning growth but in this research the concept of sales growth used to find out the growth of particular company.

Sales growth rate can be term as the percentage change in the value of total sales. Sales growth was the main indicator of gauging the company’s financial growth or the growth through the sale.

Sales growth was a valid predictor for computing the growth of any manufacturing companies because the growth of manufacturing companies were totally based on the total sales.

In past there were lot of work on growth with different variables from which some were Sanford l. Margoshes (1960) discuss both e/p and growth in price/earnings ratio in financial analysis: …. Its use and abuse, Joseph e. Murphy, Manown Kisor, Jr. (1964) in his paper The Financial Aspects of Growth, Jr. And Harold w. Stevenson (1967) in his research paper price/earnings ratios and future growth of earnings and dividends, changes henry a. Latane, Donald l. Tuttle, charles p. Jones (1969) in e/p ratios v. Changes in earnings in forecasting future price, Manown kisor, jr. And van a. Messner (1969) in the research the filter approach and earnings forecasts, earl m. Foster in (1970), model James a. Gentry and Stephen a. Pyhrr (1973) in simulating an eps growth, martin l. Leibowitz and Stanley Kogelman (1994) in his paper the growth illusion: the p/e ‘cost’ of earnings growth, and Joseph E. Murphy, Jr. (1966)in his paper Relative Growth of Earnings per Share Past and Future

Cement was one of the major industries of Pakistan. Pakistan was wealthy in cement raw material. At present many cement plants were operating in personal sector. Pakistan cement industry has huge prospective for export of cement to neighboring countries like indian market, middil east market and Russian states. There has been a strong growth of cement demand seen both in local and exports market during the previous decade.

This research was beneficial for people who want to invest in cement sector; more over it help every person who wants to buy shears of cement industry. This study was helpful for the economist, consult it for watching the state of the sector and also give views about to improve the situation of sector.

This study examines the relation between earning price ratio and corporate growth. To determine the relation between earning price ratio and growth, eps and per share market value had been used for calculating the e/p ratio and earning growth was used to calculate growth of firm by taking difference of current eps and previous eps then divide the result from previous eps, correlation technique and regression analysis have been applied in order to determine the relationship. The companies which were included in this study were from the cement sector and testing on hypothesis had been done on the data from 2003 to 2008.

Research Objective

The objective was to determine that price earning ratio was a valid predictor of growth.

The map of this research was as follows: In section II there was full description of variable used in research. In section III data used in the research, that was the testable proposition of the price earning ratio to forecast growth and methodology, was evaluated. Empirical outcome were provided in section IV and section V contained concludes

CHAPTER TWO: LITERATURE REVIEW

Robert shiller’s field of the S&P compound real p / e ratio and interest rates (1871-2008), the irrational exuberance. The foreword to this edition, Shiller informs that “the stock market has not fallen to historic levels: the p / e ratio as I describe it in this book was to this day [2005], in the mid 20 much higher than the historical average. People were still too great self-belief in the markets and have too much strong conviction that were aware of twist in the investments had sooner or later become wealthy, and not made preparations for possible bad results conservative.

Price earning ratio of a share was a gauge of the paid price per share on net yearly income or per share earnings earned by the company. It was a financial ratio used for evaluation: one more price earning ratio means that investors had to pay extra for every unit of net profits, so that the stock was more expensive than one with low price earning. Price earning ratio has units of years, which can be interpreted as: years of income to repay the purchase price; does not take into account the tvm (time value of money). In other terms, indicates the price earning, the current demand of investors for a stock company. The pe ratio was known as inverse performance gains. The earning price was an estimate of projected performance gain holding the stock, if one admits certain restrictive hypothesis (a debate of these hypothesis might be found here).

Definitions

There were different price ratios used, all of which were defined as follows:

The stock price in the numerator was the market worth for a single share of stock. The eps in the denominator depends on the price earning

Trailing P/E” or “P/E ttm”