Price-to-Earnings Ratio
Categories: Company Valuation, Metrics, Stocks, Investing
It's a measure of a company's valuation, usually relative to that of the overall stock market.
Example
If a company, let's call it Theoretical Company Blah, will earn $1 a share this year and the stock of TCB trades at $20, then it has a 20x or 20:1 price-to-earnings ratio. The "gotcha" here is that companies often carry cash and/or debt, so if TRB has $10 a share in debt and $4 a share in cash, then its price-to-earnings ratio is still 20—but it likely has more volatility in its movements, since the debt is gasoline on a fire when things go well or poorly.