Price earnings ratio (P/E Ratio) measures relationship between market price of equity shares and earnings per share. It is usually expressed as a fraction.
Purpose:
1) Purpose of this ratio is to show the effect of the earning on the market price of the share.
2) It helps the investors while deciding whether to purchase, keep or sell the equity shares.
3) It helps to ascertain the value of equity share.
Formula:
Components:
1) Market price per equity share = quoted price of a listed equity share.
2) Earnings per equity share refer to formula given above.
Give your comments and share your views in the comment section below. Follow me on Twitter @sulthankhan
