What is the ratio of a stock's current price to its earnings per share?

• A. Dividend Yield
• B. Price-to-Earnings Ratio
• C. Beta
• D. Income Statement

Answer: (B)

This tests your understanding of the price-to-earnings ratio. It is calculated by dividing the current price per share by the earnings per share. This ratio shows how much investors are willing to pay for each dollar of a company’s earnings. A higher P/E typically reflects higher expected future growth or a stock perceived as more expensive, while a lower P/E can indicate undervaluation or slower growth, though context matters (industry norms, growth prospects, etc.). The earnings figure can be trailing (past 12 months) or forward (expected next year), giving trailing or forward P/E. The other concepts are different: dividend yield relates price to dividends, beta measures volatility relative to the market, and an income statement is the financial report of revenues and expenses.