A price-to-earnings (P/E) ratio is a financial metric used to evaluate the relative value of a company’s stock. It is calculated by dividing the market price per share of a company’s stock by its earnings per share (EPS).
Page written by AI. Reviewed internally on June 26, 2024.
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To calculate the P/E ratio, follow these steps:
Determine the market price per share: Find the current market price of one share of the company’s stock. You can usually find this information on financial websites or through your stockbroker.
Calculate the earnings per share (EPS): Obtain the company’s net income from its latest financial statements and divide it by the total number of outstanding shares. This will give you the earnings per share.
Divide the market price per share by the earnings per share: Divide the market price per share (step 1) by the earnings per share (step 2) to calculate the P/E ratio.
The formula for calculating the P/E ratio is:
P/E ratio = Market price per share / Earnings per share
Please note that the P/E ratio is just one of many financial indicators used to assess a company’s value and should not be the sole basis for making investment decisions. It’s important to consider other factors such as industry trends, company performance, and future growth prospects when evaluating a stock.
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