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Price-Earnings Ratio
The price-earnings ratio is a ratio of the company's market price per share to its earnings per share. The ratio is used by investors to determine if companies are overvalued or undervalued and is a gauge of the expected growth of the business.
About the P/E Ratio
- High ratio
- Could mean the company is overvalued
- Could mean the company is expected to grow very rapidly
- Low ratio
- Could mean the company is undervalued
- Could mean the company is expected to grow slowly
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Example: Price-Earnings Ratio
In 2019, Apple Inc. reported EPS of $11.97 and paid $3.08 in dividends. The current market price of the stock is $364.11.
What is the company's price-earnings ratio?
Practice: Price-Earnings Ratio
Compute the price-earnings ratio for the year 2020. Do not round your work, round your final answer to 4 decimal places and enter you answer in decimal form.
Additional information:
- On May 31, 2020 the market price per common share was $98.58.
- The average number of outstanding common shares is 1,558.8 million shares
- The company pays annual dividends of $0.955 per common share.
