1. What is P/E Ratio?

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

2. How Does the Calculator Work?

The calculator uses the P/E ratio formula:

Where:

• \( Price \) — Current stock price (USD)
• \( EPS \) — Earnings per share (USD)

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

3. Importance of P/E Ratio

Details: P/E ratio is crucial for comparing companies within the same industry, assessing market expectations, and identifying potential investment opportunities.

4. Using the Calculator

Tips: Enter the current stock price in USD and the company's earnings per share (EPS) in USD. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good P/E ratio?
A: There's no single "good" ratio. Generally, lower P/E may indicate undervaluation, but this varies by industry and growth prospects.

Q2: How does P/E ratio differ from forward P/E?
A: Standard P/E uses trailing EPS (past 12 months), while forward P/E uses projected future EPS.

Q3: Why might a company have a negative P/E?
A: Negative P/E occurs when EPS is negative (company is losing money). The ratio becomes meaningless in this case.

Q4: What are limitations of P/E ratio?
A: Doesn't account for growth rates, debt levels, or industry differences. Best used with other metrics.

Q5: How does P/E vary across industries?
A: High-growth sectors (tech) typically have higher P/Es than stable sectors (utilities).