Price to Earnings Ratio (P/E)

Definition:

The market value of a company’s stock divided by the company’s net income.

Examples:

A price to earnings ratio of more than 30% may indicate that a company’s stock price has been inflated in an attempt to make it look good to investors.

When a corporation’s P/E ratio has been consistently high, it is a sign that the organization is stable and the product is very marketable.