Final answer:
The Price to Earnings (P/E) ratio is a valuation metric used in financial markets to assess the relative value of a company's stock.
Step-by-step explanation:
In the context of financial markets, the Price to Earnings (P/E) ratio is a valuation metric used to assess the relative value of a company's stock. It is calculated by dividing the market price per share by the company's earnings per share (EPS).
The P/E ratio provides insights into how much investors are willing to pay for each dollar of the company's earnings. A higher P/E ratio indicates that investors have higher expectations for future earnings growth, while a lower P/E ratio suggests lower growth expectations.
For example, if a company's stock has a P/E ratio of 20, it means investors are willing to pay $20 for each dollar of the company's earnings per share.