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About Price to Earnings (P/E) Ratio

Posted in FAQ | Traders' Delusions, Submitted by Trading Critic on Wed, 2006-11-22 02:40.
The Price to Earnings (P/E) Ratio is the most commonly used valuation metric used by investors

The Price to Earnings (P/E) Ratio is the most commonly used valuation metric used by investors to help determine is individual stocks are reasonably priced. It is a simple ratio to calculate but can be confusing to interpret. The ratio can be useful in some cases yet useless in others. The ratio was popularized by Benjamin Graham - author of "The Intelligent Investor" (a must read for all serious investors). Graham used this financial ratio as a quick way to determine if the company stock was trading on an investment or speculative basis.

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