- 1). Identify the company’s current stock price. The company’s current stock price can be obtained from a reputable business news source available on print or online, such as Morningstar, Bloomberg or the Wall Street Journal.
- 2). Identify the company’s earnings per share. The EPS can be found on the company’s income statement. The figure is calculated by taking the income available to common shareholders, or net income subtracted by preferred dividends, divided by the weighted average number of common shares outstanding. Online business news sources can also have this figure listed under the company’s profile.
- 3). Calculate the P/E ratio. Take the stock price from Step 1, and divide by the company’s EPS from Step 2. The ratio should be analyzed along with other financial ratios and information on the company to determine its significance. It’s possible that a company with a high P/E ratio may experience above average growth in the future and a company with a low P/E ratio may not be a good buy if earnings are on a downward trend.
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