Fundamental AnalysisBeginner
P/E Ratio
Price-to-Earnings Ratio
How many rupees you pay for every rupee of a company's annual profit.
Detailed explanation
Divide the share price by earnings per share. A high P/E means the market expects strong growth, a low one can mean pessimism — or a value opportunity. The ratio is only meaningful against the same company's history and its industry peers.
Formula
P/E = Share price / Earnings per share
Example
A stock at ₹800 with an EPS of ₹40 trades at a P/E of 20 — you pay ₹20 for each ₹1 of yearly profit.
Why it matters
It is the fastest sanity check on whether expectations already priced into a stock are demanding.
Key points
- Meaningless for loss-making companies.
- Trailing P/E uses reported earnings; forward P/E uses estimates.
- Compare within a sector — banks and FMCG trade at very different levels.
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Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.