Price to Earnings Ratio

Provides a quick way to value a company, measuring how expensive the stock may be.

Also called the PE or P/E ratio, the Price to Earnings Ratio compares the Market Price of Common Stock to the Earnings per Share. This ratio is a quick measure of how "expensive" the stock of a company may be.

A company's stock may be heard as being "overvalued" - this ratio is the calculation often behind analyses like that. As the Earnings per Share increases, or the Market Price of Common Stock decrease, the ratio will look better.

Tags: Financial Ratio