We calculate the PE ratio as the stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis.

Question

Quizplus · Accepted Answer

This statement is accurate and describes the basic formula for calculating the price-to-earnings (PE) ratio, which is a common valuation metric used in the stock market. By dividing the current market price of a stock by the earnings per share (EPS) that the company generates, investors can get a sense of how much they are paying for each dollar of earnings that the business produces. The PE ratio is therefore a useful tool for comparing the relative valuations of different stocks within the same industry or sector, as well as for evaluating a company's growth prospects and profitability.

We Calculate the PE Ratio as the Stock Price Divided