Price Earnings Ratio
The Price Earnings Ratio (P.E ratio) represents the price of a share relative to its earnings per share . To calculate the Price Earnings ratio, you will have to divide the share price of a stock by its earnings per share. The result you get determines how much you are willing to pay to claim part of the profits of the company. For example, if earnings per share is N2 and the price of a stock is N50, the Price earnings ratio is 25x. Thus if you buy the stock at that price you have agreed that the company’s share price of N50 is worth 25x its earnings per share. The P.E ratio can change daily depending on the current share price of the stock
