|Formula to Calculate the Price to Earnings Ratio|
Definition:Price to Earnings or PE ratio is the proportion or relationship, expressed as a number, between the market price of a stock and the scrip's earnings per share or EPS.
Let us consider the example of the EPS of SJVN Ltd., a company listed on Indian stock exchanges, for the financial year ending on 31st March, 2015.
|Example of Calculation of PE Ratio of SJVN Ltd.|
Price to Earnings Ratio is the first of the two most important metric in determining the fair price of a share, the second being ‘Price to Book Value Ratio'. If the PE Ratio is less than 10, it is a good bargain. Maximum recommended is 10 times, beyond which the price is not fair or reasonable.