What is P/E, what is it used for and how do I measure it?

Answer 1

(Share) Price divided by Earnings (i.e. Profits)

Essentially it's an (inverse) indication of the value of a Company .. the higher the p/e ratio the more expensive the shares are ..

You need to look at many other things before you can put a real value on a Company ..

If you read the FT you will see some Companies with very low p/e (which suggests they are 'cheap') and some with very high (suggesting expensive) .. but Investors are plainly willing to hold the shares with those ratios, so something else must be either keeping them cheap or making them more valuable ..

Answer 2

p/e stands for price to earnings ratio. Essentially you are dividing the cost of an equity (or other asset) by the annual income it provides. This will give you an indication of how long it may take you to recoup your initial investment. Generally newer companies with positive growth models for the future have higher ratios than older, established ones. Hope this helps

Answer 3

Hi,

Its the price of a share divided by the profit for each
share, Its said to be favourable if the return is higher than
the going interest rates .
Rgds.............