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Explain the ratio PlE: 2o

Explain the ratio PlE: 2o

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Answer #1

Price earing ratio = 20 times

Price earning ratio indicates at how many times the stock price of the company is trading in the market to its earing per share.

P/E ratio can be denoted as= Market price per share/ Earning per share or MPS/EPS

Lets say the company has Net income of $1,000,000 and has 10000 oust standing shares. So Earning per share = $1000000/10000=$100 per share.

Further if the P/E ratio is 20 times then Price of the stock in the market will be ($100*20times)= $2000 Market price per share.  

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