1. What is the Price Earnings Ratio?

The Price Earnings (PE) ratio is a valuation metric that compares a company's stock price to its earnings per share. 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 PE ratio formula:

Where:

• \( Price \) — Current stock price (in currency)
• \( Earnings \) — Company's earnings per share (in currency)

Explanation: The PE ratio shows how much investors are willing to pay per unit of earnings. A higher PE suggests higher growth expectations.

3. Importance of PE Ratio

Details: The PE ratio is crucial for comparing valuation between companies in the same industry, assessing market expectations, and identifying potential investment opportunities.

4. Using the Calculator

Tips: Enter the current stock price and earnings per share (both in the same currency). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good PE ratio?
A: There's no single "good" PE ratio. It varies by industry, growth prospects, and market conditions. Compare to industry averages.

Q2: Can PE ratio be negative?
A: Yes, if earnings are negative. Negative PE typically indicates the company is losing money.

Q3: What's the difference between trailing PE and forward PE?
A: Trailing PE uses past earnings, while forward PE uses estimated future earnings.

Q4: Why do PE ratios vary across industries?
A: Different industries have different growth rates, risk profiles, and capital structures that affect valuation multiples.

Q5: How does PE ratio relate to investment returns?
A: Generally, lower PE stocks may offer better value, but high PE stocks might have stronger growth potential.