Friday, September 23, 2016

Price to Earnings Ratio - Formula

EPS Formula:

Formula to Calculate the Price to Earnings Ratio


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.

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