Practice Problem – P/E Ratio

Practice Question

Cases in Finance
Valuation Tools
Multiples
True or False

The Price-Earnings (P/E) ratio is calculated as the current share price divided by the company's earnings per share (EPS).

Answer +
TRUE
Explanation +

The P/E ratio is one of the most widely used valuation multiples. It is computed by dividing the current market price of a company's stock by its earnings per share (EPS). This ratio indicates how much investors are willing to pay today for each dollar of earnings and is often used to assess whether a stock is overvalued or undervalued compared to its peers.