What is PE Ratio (Price-to-Earnings Ratio)?
Nexa Consultancy | Startup & Finance Glossary
The Price-to-Earnings (P/E) ratio is a valuation metric that compares a company's current share price to its per-share earnings. It indicates how much investors are willing to pay for each rupee of a company's earnings. A high P/E ratio can suggest that investors expect higher future earnings growth.
For Startups: Similar to EPS, the P/E ratio is not applicable to most early-stage startups because they are not yet profitable and have negative earnings. For later-stage, profitable startups, the P/E ratio can be a useful valuation benchmark, but it is more commonly used for public companies.
Calculation: P/E Ratio = Market Value per Share / Earnings per Share (EPS).
Example: A company with a share price of ₹500 and an EPS of ₹25 has a P/E ratio of 20.