The price to earnings (P/E) ratio is the most popular and commonly used indicator to value a company’s stock. P/E ratios are available for a company, an industry or even a stock group such as the BSE Sensex or the NSE Nifty.

In financial jargon, it is defined as the ratio of a company's stock price to its earnings per share (EPS-a company’s net profit divided by number of shares issued by the company).

In simple terms, it helps you to evaluate how cheap or expensive is a particular company’s stock price.

For example, if a company stock is priced at Rs 300 and the EPS is company is Rs.15, the P/E is 20. This implies an investor is ready to pay 20 times the company’s earnings.

You can use the P/E Ratio to compare stock prices of two companies from the same industry or even from different industries.