1. What is the P/E Ratio?

The Price-to-Earnings (P/E) ratio is a valuation metric that compares a company's share price to its earnings per share (EPS). It helps investors assess whether a stock is overvalued or undervalued relative to its earnings.

2. How Does the Calculator Work?

The calculator uses the P/E ratio formula:

Where:

• Share Price — Current market price per share ($)
• EPS — Earnings Per Share ($)

Explanation: The P/E ratio indicates how much investors are willing to pay per dollar of earnings. A higher P/E suggests higher growth expectations.

3. Importance of P/E Ratio

Details: P/E ratio is one of the most widely used valuation metrics in stock analysis. It helps investors compare companies within the same industry and make informed investment decisions.

4. Using the Calculator

Tips: Enter the current share price and EPS in dollars. Both values must be positive numbers greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: What is a good P/E ratio?
A: There's no universal "good" P/E ratio. It varies by industry, growth prospects, and market conditions. Generally, lower P/E may indicate undervaluation, while higher P/E may suggest overvaluation.

Q2: What are the limitations of P/E ratio?
A: P/E ratio doesn't account for company debt, growth rates, or industry differences. It can be distorted by one-time events and accounting methods.

Q3: How does P/E ratio differ across industries?
A: High-growth industries (like tech) typically have higher P/E ratios, while mature industries (like utilities) have lower P/E ratios.

Q4: What is forward vs trailing P/E?
A: Trailing P/E uses past earnings, while forward P/E uses estimated future earnings. Forward P/E is more speculative but may better reflect future prospects.

Q5: Can P/E ratio be negative?
A: Yes, if a company has negative earnings (losses), the P/E ratio becomes negative and is generally not considered meaningful for valuation.