Question

If the price of a certain stock is $55.00 per share and its earnings are $2.75 per share, what is the ratio of the earnings to the stock’s price in lowest terms?

Answer 1

The earnings-to-stock-price ratio in simplest terms is 20.

What is PE ratio?

• A stock's P/E ratio is calculated by dividing its price by its annual earnings per share.

• The P/E ratio assists investors in determining whether a company's stock is overvalued or undervalued in relation to its earnings. The ratio measures what the market is willing to pay for the company's current operations as well as its potential growth. If a company has a high P/E ratio, the market believes in its growth potential and is willing to overspend today based on future earnings.

Here given,

Stock price = $55.00

Earnings per share = $2.75

We have to find ratio od earnings,

The formula is,

Ratio is : P/E

By substituting the values,

Ratio = $55.00 / $2.75

= 20