The Price to Earnings Ratio (P/E Ratio) is a valuation metric that compares a company’s current share price to its earnings per share. It is widely used by Investors to determine whether a stock is overvalued, undervalued, or fairly valued.
Formula for P/E Ratio
P/E Ratio = Market Price Per Share ÷ Earnings Per Share
Example
If the market price of a share is Rs.50 and the earnings per share (EPS) is Rs.20, then:
P/E Ratio = 50 ÷ 20 = 2.5