The Variables Affecting the Price Earnings Ratio Original post
by Jonathan Langsdorf of Demand Media The price-to-earnings --
P/E -- ratio is a commonly used stock-valuation indicator. The
P/E ratio is so widely used it is included in the data when you
research a stock price using any of the major stock-market
information websites. An investor who understands the factors
affecting the P/E ratio will be better able to evaluate stock
prices. Calculate a price-to-earnings ratio by dividing the
current share price by the earnings per share for the previous
12 months. For example, if a stock is priced at $50 and the
earnings per share were $2, the P/E of the stock is 25. The
ratio can be used to compare stocks with widely different share
prices. A $100 stock with a 25 P/E and a $10 stock with the same
ratio have a comparable valuation. The earnings used to
calculate the standard P/E ratio are the earnings for the
previous 12 months. In most cases, the quarterly net earnings
per share for the four most recently rep