TEACHING AND LEARNING INVESTING - STOCK MARKET LESSON PLANS - WORKSHEETS LESSON PLAN - CALCULATE PE RATIO FOR STOCKS

# The Price Earning Ratio (PE RATIO)

What is the Price Earning Ratio?

A price earning ratio, or "P/E" for short, is a commonly used way to simplistically value a company (determine what a company's stock should be worth). It is simply a company's stock price divided by a company's earnings per share. The price to earnings ratio, also known as "P/E", is calculated by dividing the company's stock price by the company's earnings per share, or "EPS".

Stock Price

-----------------

EPS

For example, if MSFT stock is \$30 and has EPS \$1.00 of then PE is:

\$30

-------         =      30

\$1.00

The P/E ratio gives you an indication of how many times you are paying for a company's stock verse a company's earnings. P/E ratios can be used to compare against other companies, or against a company's own historical P/E ratio. It is believed by some that a company with a high (large) P/E ratio is expensive verse a company with a low P/E ratio, since with a high P/E ratio you are paying a larger multiple verse a company's earnings.

Higher P/E ratio's are often associated with "growth stocks", or companies that are growing faster than average. The reason why some companies have a high P/E is because investors believe that the company's earnings will be higher in the future. P/E ratios can not be applied to companies without any earnings. For these companies, other ratios or valuation techniques need to be used.

The following worksheets provide an opportunity to practice calculating the P/E ratio.  Many of these worksheets are RANDOM and customizable, so you may print out several different versions depending on the skill level of your students.

Calculating the price earning ratio (P/E ratio)

This worksheet is for younger students.

Also good for division practice.

PRICE EARNING RATIO

Calculate the price earning ratio (P/E ratio)

This worksheet is for older money students.

Includes larger selection of company choices.

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