price-to-earnings ratio

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Word: Price-to-Earnings Ratio (P/E Ratio)

Part of Speech: Noun

Simple Explanation:

The price-to-earnings ratio, or P/E ratio, is a number used in the stock market. It tells you how much investors are willing to pay for each dollar a company earns. To find it, you take the price of a company's stock and divide it by the company's earnings (profit) per share.

How to Use It:

• You can use the P/E ratio to compare different companies. A higher P/E ratio might mean that people expect the company to grow a lot in the future.
• To calculate it, you can use the formula: [ \text{P/E Ratio} = \frac{\text{Price per Share}}{\text{Earnings per Share}} ]

Example:

Imagine you have a company called "Tech Innovations." If the stock price is $50 and the earnings per share are $5, the P/E ratio would be: [ \text{P/E Ratio} = \frac{50}{5} = 10 ] This means investors are willing to pay $10 for every $1 the company earns.

Advanced Usage:

• Investors often look at the P/E ratio to determine if a stock is overvalued (too expensive) or undervalued (not expensive enough).
• It can also be used to analyze growth stocks (companies expected to grow quickly) versus value stocks (companies that are considered cheap compared to their earnings).

Word Variants:

• Earnings per Share (EPS): This is the amount of profit a company makes for each share of its stock. It is often used to calculate the P/E ratio.
• Price: The current value or cost of one share of the stock.

Different Meanings:

The term "price-to-earnings" is very specific to finance and investing. It doesn't have other common meanings outside this context.

Synonyms:

• P/E Ratio (abbreviation)
• Earnings multiple (another term that refers to the same concept)

Idioms and Phrasal Verbs:

While there are no direct idioms or phrasal verbs specifically related to the P/E ratio, understanding the concept can help you with phrases like "the market is bullish" (meaning investors expect prices to rise) or "the stock is overvalued" (meaning it has a high P/E ratio compared to its earnings).

Summary:

The price-to-earnings ratio is an important tool for investors to evaluate and compare the value of different stocks.

Academic

Noun

1. (stock market) the price of a stock divided by its earnings

Synonyms

• p/e ratio