Explanation – The Price-to-Earnings (PE) ratio is a financial metric used to evaluate a company’s stock price relative to its earnings per share. It is calculated by dividing the company’s current market capitalization (or market value) by its annual earnings (or net income). In simpler terms, the PE ratio indicates how much investors are willing to pay for a company’s shares for each unit of earnings. A higher PE ratio suggests that investors are paying more for the company’s earnings, which could indicate higher expectations for future growth.

Source: The Hindu