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Price to Earnings Ratio
Market Price of Common Stock 
 Price to Earnings Ratio =
Earnings Per Share

Explanation of Price to Earnings Ratio:

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. 

Importance of Price to Earnings Ratio:

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 increase, or the Market Price of Common Stock decrease, the ratio will look better. 

 

More About price to earnings ratio:

Calculate and compare the price to earnings ratio to other companies and other ratios:
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