The P/E ratio, or Price-to-Earnings ratio, is a financial metric that measures a company's current share price relative to its earnings per share (EPS). It is calculated by dividing the market price of a share by the earnings per share:

P/E Ratio=Share PriceEarnings per Share (EPS)\text{P/E Ratio}=\frac{\text{Share Price}}{\text{Earnings per Share (EPS)}}P/E Ratio=Earnings per Share (EPS)Share Price​

This ratio indicates how much investors are willing to pay for each unit of earnings. For example, a P/E ratio of 20 means investors are willing to pay $20 for every $1 of earnings the company generates

. The P/E ratio is widely used to assess whether a stock is overvalued, undervalued, or fairly valued. A high P/E ratio may suggest that the stock is expensive or that investors expect high earnings growth in the future. Conversely, a low P/E ratio may indicate that the stock is cheap or that the company is expected to perform poorly

. There are different types of P/E ratios, such as trailing P/E (based on past 12 months' earnings) and forward P/E (based on projected future earnings), with forward P/E often considered more relevant for investment decisions

. In summary, the P/E ratio is a key valuation tool that helps investors compare companies and make informed decisions about buying or selling stocks based on their earnings relative to price