EPS Formula:
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| 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.Example:
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.
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| Example of Calculation of PE Ratio of SJVN Ltd. |
Significance:
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.
