Final answer:
The Price to earnings ratio (P/E ratio) is a common financial metric used to assess the relative valuation of equities, dividing the market value per share by the earnings per share (EPS).
Step-by-step explanation:
A common measure used to assess the relative valuation of equities is the Price to earnings ratio (P/E ratio). This is a financial metric used to evaluate the valuation of a company's shares. Essentially, the P/E ratio divides the market value per share by the earnings per share (EPS). This gives investors an idea of what the market is willing to pay for each dollar of earnings, making it a valuable tool for comparing valuations of companies within the same industry or the market as a whole.
To provide a clearer example, if a company's stock is trading at $100 per share and the company earns $10 per share, the P/E ratio would be 10 ($100/$10). This can be compared to other companies' P/E ratios to determine if the stock is overvalued or undervalued relative to its peers.