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Price Earnings Ratio Formula:
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The Price Earnings Ratio (P/E Ratio) is a financial metric used to evaluate a company's current share price relative to its per-share earnings. It helps investors determine if a stock is overvalued or undervalued compared to its earnings potential.
The calculator uses the P/E Ratio formula:
Where:
Explanation: The P/E ratio shows how much investors are willing to pay per dollar of earnings. A higher P/E suggests higher growth expectations.
Details: The P/E ratio is one of the most widely used valuation metrics in stock analysis. It helps compare companies within the same industry and assess market expectations for future growth.
Tips: Enter the current stock price and earnings per share (EPS) in dollars. Both values must be positive numbers. The calculator will compute the P/E ratio instantly.
Q1: What is considered a good P/E ratio?
A: There's no universal "good" P/E ratio. It varies by industry, growth stage, and market conditions. Typically, ratios between 15-25 are considered average for established companies.
Q2: What does a high P/E ratio indicate?
A: A high P/E ratio may indicate that investors expect higher growth in the future, or it could mean the stock is overvalued relative to its current earnings.
Q3: What does a low P/E ratio indicate?
A: A low P/E ratio may suggest that a stock is undervalued, or it could indicate that the company is facing challenges and investors have lower growth expectations.
Q4: Are there different types of P/E ratios?
A: Yes, the two main types are trailing P/E (based on past earnings) and forward P/E (based on estimated future earnings).
Q5: What are the limitations of P/E ratio?
A: P/E ratios can be misleading for companies with negative earnings, and they don't account for debt levels or growth rates. They should be used in conjunction with other financial metrics.