What is the Price to Earnings (P/E) Ratio?
It is measure of company’s existing share price relative to net income earned by company per share.
P/E Ratio = Market Value per share/ Earnings per Share (EPS)
P/E ratio is usually calculated in multiples because it reveals the amount an investor is ready to pay for earnings of one dollar. For example, if a particular company is currently trading at $60 a share and earnings over the last one year were $3.00 per share, then P/E ratio of the stock would be $60/$3.00 = $20.00.
Why You Care
The higher P/E ratio of company demonstrates that investors are expecting sound earnings growth from the firm as compared to other firms. P/E ratio is very useful in doing the comparison of multiple companies in same industry. However, it doesn’t helpful if an investor is comparing companies from two different industries on the basis of P/E.
EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization),
Price-to-Earnings to Growth (PEG) Ratio,
Forward Price-to-Earnings (P/E) Ratio,
Trailing Price-to-Earnings (P/E) Ratio,
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