1. What is the P/E Ratio?

The Price-to-Earnings (P/E) Ratio is a valuation multiple that compares a company's stock price to its earnings per share. It helps investors assess whether a stock is overvalued, undervalued, or fairly priced relative to its earnings.

2. How Does the Calculator Work?

The calculator uses the P/E Ratio formula:

Where:

• \( Stock\ Price \) — Current market price per share (currency/share)
• \( EPS \) — Earnings Per Share (currency/share)

Explanation: The P/E ratio indicates how much investors are willing to pay per unit of earnings. A higher P/E suggests higher growth expectations.

3. Importance of P/E Ratio

Details: P/E ratio is crucial for investment analysis, company valuation, and comparing companies within the same industry. It helps investors make informed decisions about stock purchases and portfolio management.

4. Using the Calculator

Tips: Enter the current stock price and earnings per share in the same currency. Both values must be positive numbers greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good P/E ratio?
A: There's no universal "good" P/E ratio. It varies by industry, growth stage, and market conditions. Generally, compare with industry averages and historical values.

Q2: What's the difference between trailing P/E and forward P/E?
A: Trailing P/E uses past earnings, while forward P/E uses estimated future earnings. This calculator computes trailing P/E.

Q3: Can P/E ratio be negative?
A: Yes, if a company has negative earnings (losses), the P/E ratio becomes negative, which is generally not meaningful for valuation.

Q4: Why do P/E ratios vary across industries?
A: Different industries have different growth rates, risk profiles, and capital requirements, leading to varying typical P/E multiples.

Q5: What are the limitations of P/E ratio?
A: P/E doesn't account for debt, growth rates, or one-time events. It should be used with other financial metrics for comprehensive analysis.