A company's P/E ratio is:
A) the price of one share of its common stock divided by its earnings per share.
B) its profits per share divided by its equity per share.
C) its profits per share divided by its excess cash flow per share.
D) None of the above

Question

Quizplus · Accepted Answer

The P/E (price-to-earnings) ratio is the market value per share divided by the earnings per share (EPS) of a company. It is a valuation ratio used to determine the relative value of a company's shares in the marketplace. EPS is the amount of earnings per share of common stock outstanding, and the market value per share is the current market price of one share of common stock. Therefore, choice A is the correct definition of a company's P/E ratio.

A Company's P/E Ratio Is