1. What is the Price Earnings Ratio?

The Price Earnings Ratio (P/E Ratio) is a valuation metric that compares a company's stock price to its earnings per share. It helps investors determine if a stock is overvalued or undervalued relative to its earnings potential.

2. How Does the Calculator Work?

The calculator uses the P/E Ratio formula:

Where:

• Market Price — Current stock price in dollars
• EPS — Earnings Per Share in dollars

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

3. Importance of P/E Ratio

Details: The P/E ratio is one of the most widely used metrics in stock valuation. It helps compare companies within the same industry and assess whether a stock is reasonably priced relative to its earnings.

4. Using the Calculator

Tips: Enter the current market price of the stock and its earnings per share (EPS). 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 single "good" P/E ratio as it varies by industry. Generally, ratios between 15-25 are considered reasonable, but this depends on growth prospects and industry norms.

Q2: What does a high P/E ratio indicate?
A: A high P/E ratio may indicate that investors expect higher future growth, but it could also mean the stock is overvalued.

Q3: What does a low P/E ratio indicate?
A: A low P/E ratio may suggest a stock is undervalued, but it could also indicate problems with the company or limited growth prospects.

Q4: Should I only use P/E ratio for stock evaluation?
A: No, P/E ratio should be used alongside other financial metrics and qualitative factors for comprehensive stock analysis.

Q5: How often should I calculate P/E ratio?
A: P/E ratios should be monitored regularly as stock prices and earnings change over time, especially around quarterly earnings reports.