Final answer:
The price-earnings ratio on common stock is calculated as the market price per share of common stock divided by earnings per share on common stock, which helps investors determine a stock's value in relation to its earnings.
Step-by-step explanation:
The price-earnings ratio on common stock is computed as market price per share of common stock divided by earnings per share on common stock. This financial metric is utilized by investors to evaluate the value of a company's stock relative to its earnings. It reflects how much investors are willing to pay for each dollar of a company's earnings. In the context provided, if the present value (PDV) of total profits is divided by the number of shares, the result gives a theoretical price per share based on the calculated earnings per share.