What is price earning ratio

 

The Price-Earnings (P/E) Ratio is a common financial metric used to evaluate the valuation of a company's stock. It tells you how much investors are willing to pay for each dollar of a company’s earnings.

Formula :

What it means:

• High P/E: Investors expect high future growth (could mean the stock is overvalued or has strong potential).

• Low P/E: May indicate the stock is undervalued or the company is facing difficulties.

 Example:

Let’s say:

• A company’s stock price = ₹500
• Earnings per share (EPS) = ₹25

Then:

This means investors are paying ₹20 for every ₹1 of the company’s earnings.