What is P/E Ratio?

June 27, 2012 | By Fitz | Filed in: General Information.

Hi Guys,

Can someone explain to me what is P/E Ratio and what is it for? 

 

Thanks! 🙂

 




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One Response to “What is P/E Ratio?”

  1. Fitz says:

    P/E ratio is price-to-earnings ratio and it is a measure of the price paid for a share relative to the annual earnings per share. It is commonly used as part of the fundamental analysis in stock market investing / trading.

    A higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio.

    The P/E ratio can be seen as being expressed in years, in the sense that it shows the number of years of earnings which would be required to pay back the purchase price, ignoring inflation, earnings growth and the time value of money.

    If one stock has a P/E twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment.

    But companies are rarely equal, however, and comparisons between industries, companies, and time periods may be misleading. P/E ratio in general is useful for comparing valuation of peer companies in similar sector or group.

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