Section 7. Stock Market Related Ratios
Q37. Price earnings (P/E) ratio
How is the price earnings (P/E) ratio calculated?
A37.
Price earnings (P/E) ratio = (A) / (B)
Where,
(A) = Market price of common stock per share
(B) = Earnings per share
[Entity 37-a]
Market price of common stock per share = $43.00
Earnings per share = $1.80
Price earnings (P/E) ratio
= $43.00 / $1.80 = 23.9
[Entity 37-b]
Market price of common stock per share = $45.00
Earnings per share = $2.00
Price earnings (P/E) ratio
= $45.00 / $2.00 = 22.5
[Note]
Price earnings (P/E) ratio is higher for Entity 37-a than for Entity 37-b.
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