
P/E Ratio: Introduction
Chances are you've heard the term price/earnings ratio (P/E ratio) used before. When it comes to valuing stocks, the price/earnings ratio is one of the oldest and most frequently used metrics.
Although a simple indicator to calculate, the P/E is actually quite difficult to interpret. It can be extremely informative in some situations, while at other times it is next to meaningless. As a result, investors often misuse this term and place more value in the P/E than is warranted.
In this tutorial, we'll introduce you to the P/E ratio and discuss how it can be used in security analysis and, perhaps more importantly, how it should not be used.
If you don't have a solid understanding of stocks and how they trade on the stock market, we also suggest that you check out our Stock Basics tutorial.
P/E Ratio: What Is It?

RELATED TERMS

Earnings Per Share  EPS
The portion of a company's profit allocated to each outstanding ... 
Return On Investment  ROI
A performance measure used to evaluate the efficiency of an investment ... 
Bid Wanted
An announcement by an investor who holds a security that he or ... 
Net Present Value  NPV
The difference between the present value of cash inflows and ... 
Total DebttoCapitalization Ratio
An indicator that measures the total amount of debt in a company’s ... 
PriceToCashFlow Ratio
The ratio of a stock’s price to its cash flow per share. The ...

What is a good gearing ratio?
Understand the meaning of the gearing ratio, how it is calculated, the definition of high and low gearing, and how they reflect ... 
What is a good interest coverage ratio?
Learn the importance of the interest coverage ratio, one of the primary debt ratios analysts use to evaluate a company's ... 
What is a bad interest coverage ratio?
Understand how interest coverage ratio is calculated and what it signifies, and learn what market analysts consider to be ... 
What is the difference between the gearing ratio and the debttoequity ratio?
Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular ...