How much are you paying for each rupee the company earns?
Price-to-Earnings Ratio (P/E)
Lesson 9 of 11 · Price
P/E is the share price divided by the profit each share earned in a year (EPS).
In everyday life
A shop earns ₹1 lakh a year and is for sale at ₹20 lakh. Its P/E is 20: at today's profit, it would take 20 years to earn back what you paid.
How it's worked out
Example: Sunrise Tea, a made-up company that sells packaged tea across India.
In words: You pay ₹20 for every ₹1 the share earns in a year.
Try it yourself
Move the sliders and watch the answer, the picture and the verdict change together.
You pay ₹20 for every ₹1 the share earns in a year.
Rough guide
- Looks cheap
- Middle
- Looks pricey
What's a good number?
- Looks cheap
Up to 15x
- Middle
15x to 30x
- Looks pricey
Above 30x
Compare with the same company's past and with its sector: consumer and IT firms often trade at 25–50x, banks at 10–20x. A low P/E can mean a bargain, or that investors expect trouble.
Key number in the sector guides for IT services, Pharma and FMCG.
How to read it
Good signs
- P/E below the company's own 5-year average while profits keep growing.
- A high P/E backed by fast, steady profit growth.
Watch out for
- P/E uses past profit. If profit is about to fall, a low P/E is a trap.
- A loss-making company has no meaningful P/E.
Read it with
For learning only. Example companies are made up, and the rough guides are rules of thumb, not targets. Nothing here is advice to buy or sell any stock.