Price Earnings Ratio
The P/E ratio is a measure of historic (the previous financial year) earnings against the current share price. If the P/E is high, this means that the market perceives a big increase in future earnings per share.  In other words, the perception is that this is a fast growing company.  Higher earnings may also equate to big increases in dividends and rapid expansion.  On the other hand, if the P/E is low, then there is a perception that either earnings per share are decreasing or that future growth in earnings is negligible.  In other words, low P/E equates to a perception of low future growth and therefore low prospects for future payout increases - possibly even decreases. The market is (rightly) usually willing to pay a premium for fast growing companies. "Your question asks us to explain why a false statement is true.  From the point of view of an investor, a high price to earnings ratio is not necessarily desirable. From the point of view of an investor, a desirable stock is one that is likely to provide future dividends or price increases that more than compensates for the risk of the stock.  This information cannot be inferred from the P/E ratio. So what does the P/E ratio tell us? The P/E ratio measures a stock's current price (i.e., the market's belief about its future earnings) divided by its recent past earnings.  A high ratio means the market thinks earnings in the future will be higher than they are now and have therefore bid the price up.  These can thought of as expensive stocks, and are often called ""growth"" stocks because their price is driven by the market's belief in future growth. Some individual high P/E stocks do live up to or exceed the market's expectation, but there's no evidence that this happens enough that they are more desirable as a group than low P/E stocks. If anything, the empirical evidence goes the other way."
"In the long run (how long?) a shares price always reverts to being its proportional amount of the company's residual equity plus the net present value of its expected future cash flows. Or at least that's the theory. In practice PE ratio is used not as a way of measuring what the stock price itself will do but what the fundamental value of holding that share is compared to its price. It is a way of measuring what a company is worth compared to its price and comparing it against other companies to find companies where the underlying value of the company is underrepresented by the price. Comparing PE ratios within the same industry or sector is the most valid use for this (other than comparing previous years of the same company) and the validity of the comparison drops as the structure of the firm you are comparing with gets more different to that of the company. Each industry has its own ""typical"" average PE ratio and these differ wildly between industries so in a great many cases even comparing PE ratios between similar stocks in different industries isn't valid. Any weird pseudo PE ratio that you create for other instruments will be meaningless. In general the best way to compare investments across multiple instruments is by comparing returns. when comparing stocks to other instruments you may want to use the return on stock price or the return on capital employed (ROCE) depending on whether you want to compare the trading performance or the fundamental performance." In order to calculate the ratio you are looking for, just divide total debt by the market capitalization of the stock. Both values can be found on the link you provided. The market capitalization is the market value of equity. You could sum the P/E ratio of all the companies in the industry and divide it by the number of companies to find the average P/E ratio of the industry.  Average P/E ratio of industry  = Sum of P/E ratio of all companies in   Industry / Number of companies in industry "What you need to do is go to yahoo finance and look at different stock's P/E ratios. You'll quickly see that the stocks can be sorted by this number. It would be an interesting exercise to get an idea of why P/E isn't a fixed number, how certain industries cluster around a certain number, but even this isn't precise. But, it will give you an idea as to why your question has no answer. ""Annual earnings are $1. What is the share price?"" ""Question has no answer""" "You're correct that the trading costs would be covered by the expense ratio. Just to be clear here, the expense ratio is static and doesn't change very often. It's set in such a way that the fund manager *expects* it to cover *all* of their operational costs. It's not some sort of slider that they move around with their costs.  I'm not familiar with any ETF providers doing agreements which cover rent and equipment (hedge funds do - see ""hedge fund hotels""). ETF providers do routinely enter into agreements with larger institutions that cover stuff like marketing. PowerShares, for a while, outsourced all of the management of the Qs to BNY and was responsible solely for marketing it themselves." A value of zero or a negative value makes the percent change meaningless. Saying 100% when going from 0 to some other value is simply wrong. I have seen a similar situation several times when looking at a public company with a loss last quarter. On Google Finance or some other service, the PE ratio will be blank, N/A, or something like that. If the company does not currently have earnings, then the PE ratio is meaningless. Likewise, if the company previously did not have earnings, then the percent change of the earnings is meaningless. Also consider the example where the previous value was negative. If the previous value was negative 1 and the current value is positive 99, then this happens: A negative change? But the value went up! Obviously that value does not make sense and should not be shown. The correct p/e for bp.l is 5.80. Bp.l is on the London stock exchange and prices are in local currency. The share price of 493 is reported in pence (not dollars). The EPS is reported in pounds. Using .85 pounds = 85 pence, you calculate the EPS as follows: 493.40/85 = 5.80 PE Yahoo totally screwed up. They converted the .85 pounds into US dollars ($1.34) but didn't convert the 493 pence. By using the 493 as dollars, they got 493.9/1.34 = 368 pe! Notice that Yahoo reports the American Depository Shares (symbol 'BP') with an EPS of $8.06. That correctly reflects that there are 6 shares of BP.l per ADS (1.34 * 6 = 8.04). But why is the share price listed at $46.69? Well...  493 GBp (pence) = 4.93 pounds 4.93 pounds  = 7.73 USD 7.73 USD * 6 shares per ADS = 46.38 USD Stock price = Earning per share * P/E Ratio. Most of the time you will see in a listing the Stock price and the P/E ration. The calculation of the EPS is left as an exercise for the student Investor. The three places you want to focus on are the income statement, the balance sheet, and cash flow statement. The standard measure for multiple of income is the P/E or price earnings ratio  For the balance sheet, the debt to equity or debt to capital (debt+equity) ratio. For cash generation, price to cash flow, or price to free cash flow. (The lower the better, all other things being equal, for all three ratios.) Your observation is mostly right, that 1 is a the number around which this varies.  You are actually referencing PEG, P/E to Growth ratio, which is a common benchmark to use to evaluate a stock. The article I link to provides more discussion. PEG is Price to Earnings Growth.  I've forgotten how it's calculated, I just remember that a PEG ratio of 1-2 is attractive by Graham & Dodd standards. Annual-report expense ratios reflect the actual fees charged during a particular fiscal year.  Prospectus Expense Ratio (net) shows expenses the fund company anticipates will actually be borne by the fund's shareholders in the upcoming fiscal year less any expense waivers, offsets or reimbursements. Prospectus Gross Expense Ratio is the percentage of fund assets used to pay for operating expenses and management fees, including 12b-1 fees, administrative fees, and all other asset-based costs incurred by the fund, except brokerage costs. Fund expenses are reflected in the fund's NAV. Sales charges are not included in the expense ratio. All of these ratios are gathered from a fund's prospectus. Essentially, yes, Peter Lynch is talking about the PEG Ratio. The Price/Earnings to Growth (PEG) Ratio is where you take the p/e ratio and then divide that by the growth rate (which should include any dividends).  A lower number indicates that the stock is undervalued, and could be a good buy. Lynch's metric is the inverse of that: Growth rate divided by the p/e ratio.  It is the same idea, but in this case, a higher number indicates a good value for buying. In either case, the idea behind this ratio is that a fairly priced stock will have the p/e ratio equal the growth rate.  When your growth rate is larger than your p/e ratio, you are theoretically looking at an undervalued stock. PE ratio is the current share price divided by the prior 4 quarters earnings per share. Any stock quote site will report it. You can also compute it yourself. All you need is an income statement and a current stock quote. While on the surface it might not make sense to pay more than one dollar to get just one dollar back, the key thing is that a good company's earnings are recurring each year. So, you wouldn't just be paying for the $1 dollar of earnings per share this year, but for the entire future stream of earnings per share, every year, in perpetuity -- and the earnings may grow over time too (if it remains a good company.) Your stock is a claim on a portion of the company's future. The brighter and/or more certain that future, the more investors are willing to pay for each recurring dollar of earnings. And the P/E ratio tells you, in effect, how many years it might take for your investment to earn back what you paid – assuming earnings remain the same. But you would hope the earnings would grow, too. When a company's earnings are widely expected to grow, the P/E for the stock is often higher than average. Bear in mind you don't actually receive the company's earnings, since management often decides to reinvest all or a portion of it to grow the company. Yet, many companies do pay a portion of earnings out as dividends. Dividends are money in your pocket each year.