PE RATIO

PE RATIO

Price per share / earnings per share in the past year

The result of this formula, the PE ratio, is a useful tool for comparing the values of not only individual stocks, but mutual funds, exchange-traded funds, and even entire indexes. There’s no magic number for the PE ratio that makes a stock a good buy, because there are so many other factors that go into the decision to purchase. Is the company growing or shrinking? How many of the past five years did it make a profit? How fast has its stock price appreciated? Does it pay dividends? But you can tuck the number 18 into your back pocket, because that’s the average PE ratio of stocks in the India. Just as an example if a stock has earnings per share of Rs. 5 and the current stock market price is Rs. 95 then the PE ratio is 95/5 = 19. That would mean that every rupee of earning you are willing to pay 19 times. This is a very good measure to compare two companies in a similar industry.