Financial Terms / O - P / Price to Earnings Ratio (P.E. ratio)

Price to Earnings Ratio (P.E. ratio)

The Price to Earnings Ratio (P.E. ratio) is obtained by dividing the market price of the share by the EPS or Earnings per share. If the market price of a share is $100 and the EPS is $10, then the P.E. ratio is 10. 

The PE ratio helps investors determine what multiple of earnings the stock is trading at currently. It cannot be used as a standalone measure. Still, it can be used as a starting point to compare P.E. multiples across different companies within the same industry to begin the valuation analysis.