P/E Ratio

P/E Ratio

The P/E Ratio, or Price-to-Earnings Ratio, is a financial metric used to evaluate the relative value of a company’s Shares. It is calculated by dividing the current market price per Share by the Share/">Earnings Per Share (EPS). The P/E ratio indicates how much investors are willing to pay for each dollar of earnings.

Formula

P/E Ratio = Market Price per Share / Share/">Earnings Per Share (EPS)

Examples

1. If a company has a market price of $100 per Share and its EPS is $5, the P/E Ratio would be:

P/E Ratio = $100 / $5 = 20

2. For another company with a market price of $50 per Share and an EPS of $2, the P/E Ratio would be:

P/E Ratio = $50 / $2 = 25

Cases

– A high P/E Ratio may suggest that the market expects future growth, while a low P/E Ratio may indicate undervaluation or poor performance expectations.

– Companies in high-growth industries often have higher P/E Ratios compared to those in mature or declining industries.