1. What is the Price to Earnings Ratio?

The Price to Earnings (P/E) ratio is a valuation metric that compares a company's stock 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:

• \( P \) — Current stock price (USD)
• \( EPS \) — Earnings per share (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: P/E ratio is fundamental for stock valuation, comparing companies within the same industry, and assessing market expectations about future growth.

4. Using the Calculator

Tips: Enter the current stock price in USD and the company's earnings per share (EPS) 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. Typically, ratios are compared against industry averages or historical values for the same stock.

Q2: What does a high P/E ratio indicate?
A: A high P/E may suggest the stock is overvalued or that investors expect high growth in the future.

Q3: What does a low P/E ratio indicate?
A: A low P/E may suggest the stock is undervalued or that the company is facing challenges.

Q4: What are limitations of P/E ratio?
A: P/E doesn't account for growth rates, debt levels, or one-time earnings adjustments. It's less useful for companies with negative earnings.

Q5: Should I only use P/E for stock evaluation?
A: No, P/E should be used with other metrics like P/B, P/S, debt-to-equity, and growth rates for comprehensive analysis.