Price Earning Ratio(P/E Ratio) effective tool for investors.

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Price Earning ratio compares price of stock on the level of profit earned by companies..providing a investors a sense of value of stock.

P/E ratio = Price per share / Earnings per share (EPS)

For Example:latest Price of Nepal Investment Bank limited(NIB) is 1048(as of 2016-8-10).so,according to the financial highlight of fiscal year 2072/2073(4th Quater) the Earning Per Share(EPS) is 35.82.

So,According to above formula

P/E ratio Becomes=1048/35.82
                                  =29.25
EPS & P/E are inversely proportional to Each Other.if EPS increases then P/E ratio decreases.So,Lower P/E ratio is good for investment.
The P/E ratio is only one valuation measure, however, and investors would have to dig deeper before making any investment decisions.

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