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