What is a price to earning ratio?

Question

what does this mean?

Answer 1

You have a lemonade stand I want to buy

Your price is 100

The stand earned $10 last qtr

100/10 = $10

The problem with the P/E ratio is in raw form I do not know how this P/E compares with other lemonade stands

Answer 2

EdAtun  you are calculating earnings/price, not price/earnings

In your first example I think it would be exrtremely unlikey to have a stock priced $5 to get $100 earnings... that would be 5/100 = 0.05 !!!! tell me which company this is and I will purchase all the stocks I can!

In your second example, the PER is 5(price)/1(earnings) =5 which is also very good.

Answer 3

The company earns $100 per share.  Their stock price is $5.  The price to earnings ratio is 100 to 5  ... or 20.

The company earns $1 per share.  The stock price is $5.  The P/E ratio is 1 to 5   or  20%.

It is just one way to see if a stock is expensive or cheap to buy.

Answer 4

the price of the stock is determined by dividing the profits by the number of shareholders.