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Price Earning ratio

200282932-001Price earning ratio or P/E ratio is one of the most important ratios for the stock investors.It is  a very useful technique used by the investors to compare different types of company stocks belonging to same sectors or industry.It can be used to evaluate the different types of stocks in a given market.A stock with high  PE ratio represents a high expected earning or growth potential and a stock with low PE ratio represents a stock with low expected earnings or growth potential.

According to the stock market experts,P/E ratio really helps in selecting a ideal stock for the investment.It can be calculated by dividing the given price of the stock by the earning per share of recent 12 months.

P/E Ratio = Price of stock/Earning per share

P/E ratio also measures the average dollar spent by the investor on every dollar of earnings of the given company.To get a clear idea about the future growth potential,investors also calculate the future P/E ratios by using expected future earning per share .

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