Homework SourseExplain how to calculate the priceearnings ratio and describ
Explain how to calculate the price-earnings ratio and describe how it is used in analysis of a company\'s financial condition and performance.
Solution
As per the above example and formula we know that Price - Earning ratio is a market prospect ratio that calculates the market value of a stock relative to its earnings by comparing the market price per share by the earnings per share. In other words, the price earnings ratio shows what the market is willing to pay for a stock based on its current earnings
| CALCULATION OF PE RATIO = Price Per shares / Earning per shares | |
| Let assume the Earning per share is $ 10 Per Shares and market price is $ 50 | |
| Year 20XX | |
| PE Ratio = | |
| Market Price Per shares = | $ 50.00 |
| Divide By | \"/\" By |
| Earning Per shares = | 10.00 |
| PE Ratio = | $ 5.00 |
