1. What is the Price to Earnings Ratio?

The Price to Earnings (P/E) ratio is a valuation metric that compares a company's share price to its earnings per share. It helps investors determine if 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:

• \( \text{Share Price} \) — Current market price of one share (USD)
• \( \text{Earnings per Share} \) — Company's net income divided by outstanding shares (USD)

Explanation: The ratio shows 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: The P/E ratio is crucial for comparing companies within the same industry, assessing market expectations, and identifying potential investment opportunities.

4. Using the Calculator

Tips: Enter the current share price and the company's earnings per share (both in USD). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good P/E ratio?
A: There's no single "good" ratio. Generally, lower P/E may indicate undervaluation, but it depends on industry and growth prospects.

Q2: What's the difference between trailing and forward P/E?
A: Trailing P/E uses past earnings, while forward P/E uses projected future earnings.

Q3: When is P/E ratio not useful?
A: For companies with negative earnings or when comparing companies across different industries.

Q4: How does P/E relate to growth?
A: High-growth companies often have higher P/E ratios as investors expect higher future earnings.

Q5: What are limitations of P/E ratio?
A: Doesn't account for debt, growth rates, or industry differences. Should be used with other metrics.