The inverse of PE ratio is the earning power. If you invest Rs 100 in a stock valued at 12 times of its profits, your investment will earn 8 (100/12.5) rupees. This earning power should be more than the interest offered in the bank or the return from any other fixed income instruments. Graham says it has to be higher by at least 50 per cent. Let us say, bank deposits give 8 per cent interest. In that case you should look for a stock with an earning power of at least 12 per cent (more than 50 per cent of 8 per cent). In that case PE ratio cannot higher than (100/12) 8.22, according to
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