Can anyone explain P/E ratio?

Price to Earning Ratio

The P/E looks at the relationship between the stock price and the companyâ€™s earnings. The P/E is the most popular stock analysis ratio, although it is not the only one you should consider.

You calculate the P/E by taking the share price and dividing it by the companyâ€™s EPS (Earnings Per Share that we saw above)

P/E = Stock Price / EPS

For example: A company with a share price of Rs.40 and an EPS of 8 would have a P/E of: (40 / 8) = 5

What does P/E tell you?
Some investors read a high P/E as an â€œoverpriced stockâ€.

However, it can also indicate the market has high hopes for this stockâ€™s future and has bid up the price.

Conversely, a low P/E may indicate a â€œvote of no confidenceâ€ by the market or it could mean that the market has just overlooked the stock. Many investors made their fortunes spotting these overlooked but fundamentally strong stocks before the rest of the market discovered their true worth.

In conclusion, the P/E tells you what the market thinks of a stock. It tells you whether the market likes or dislikes the stock. If things are vague and unclear to you, do not worry. The next ratio will make everything you read till now make sense..

For a given company
P - Price of a share
E - Earning per share = Net Profit / No. of shares floated

P/E ration of Sensex 30 for Fy09 is estimated around Rs. 1000 (combibed EPS of the 30 companies).

Considering the one year historical forward PE of sensex as 20, Sensex is fairly valued at 20,000 (20x1000).

The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for each unit of income. It is a valuation ratio included in other financial ratios. The reciprocal of the P/E ratio is known as the earnings yield.

P/E ratio=Price per Share/Earnings per Share

The price per share (numerator) is the market price of a single share of the stock. The earnings per share (denominator) is the net income of the company for the most recent 12 month period, divided by number of shares outstanding. The earnings per share (EPS) used can also be the "diluted EPS" or the "comprehensive EPS".

For example, if stock A is trading at $24 and the earnings per share for the most recent 12 month period is $3, then stock A has a P/E ratio of 24/3 or 8. Put another way, the purchaser of stock A is paying $8 for every dollar of earnings. Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as Not applicable or "N/A"); sometimes, however, a negative P/E ratio may be shown.

By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a company and its shares relative to the income the company is actually generating. Investors can use the P/E ratio to compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal, it is a less attractive investment. Companies are rarely equal, however, and comparisons between industries, countries, and time periods may be misleading.

Earnings per share (EPS) are the earnings returned on the initial investment amount.

In the US, the Financial Accounting Standards Board (FASB) requires companies' income statements to report EPS for each of the major categories of the income statement: continuing operations, discontinued operations, extraordinary items, and net income.

Calculating EPS

The EPS formula does not include preferred dividends for categories outside of continuing operations and net income. Earnings per share for continuing operations and net income are more complicated in that any preferred dividends are removed from net income before calculating EPS. Remember that preferred stock rights have precedence over common stock. If preferred dividends total $100,000, then that is money not available to distribute to each share of common stock.

Earnings Per Share (Basic Formula)

Earnings Per Share = Profit / Weighted Average Common Shares

Earnings Per Share (Net Income Formula)

Earnings Per Share = Net Income / Weighted Average of Common Shares

Earnings Per Share (Continuing Operations Formula)

Earnings Per Share = Income from Continuing Operations / Weighted Average Common Shares

Hope this information was useful...
i wish u good luck...!!!!!!

Its the Price to Earnings Ratio.
Price: The current market price of the stock
Earnings: Earnings per share
Net Income-Dividends - Common & Preferred Stock
----------------------------------------...
Shares outstanding.
The P/E is commonly called the multiplier. As it is a mutliple that is solely determined by the Company, NOT the market.
This is a valueable metric, as you compare it with companies within the same sector, it tells you which ones are cheap relative to their peers (assuming they all have the same growth rate).
Example: XYZ has a P/E of 10. MNO has a P/E of 15. Both have the same growth rate and market capitalization, as the Widget industry is very competitive. XYZ is trading at $20/share and MNO is trading at $18/share. Despite the market price, XYZ is actually cheaper. In fact, XYZ could increase their P/E to 15 like MNO and would still be cheap or comparable to MNO. The increase could yield a market price of $30/share for XYZ, while MNO is more expensive than XYZ and will likely not experience market increase.

Hope this helps.

It is a stocks price per share divided by the companies earnings per share. It gives a rough estimate if a stock is under or over-valued (cheap or expensive). It may be useful when comparing stocks in the same industry.

This is a price to earnings number where the smaller the number the more the security is thought to be underpriced. The market prices securities based on lots of things including mass hysteria. If enough people think a security is underpriced and they see an opportunity to make some money, they'll buy it. When the price raises up to where other similar companies are located in the P/E world the security can be sold for a profit.

I thought it was Profit Earning Ratio...

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