What is price to earning ratio

 

The Price Earnings Rate (P/E) is the ratio between a company's stock prices and earnings/share. This ratio is popular because it gives investors a better idea of the values of a company. The P/E rate is an indicator of market expectations. It represents the price per unit of future earnings.

In order to evaluate a stock's value, investors need to know the company's earnings. They want to know how profitable the company is in the long-term. Also, if earnings are stagnant and the company doesn’t grow, the P/E indicates how long it will take to pay back the shares.

 

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