One of the typical valuation tools used by investors is the price earnings ratio. Price earnings ratio is calculated by dividing stock price over earnings.
Just as there are different investors, there are many ways that this otherwise seemingly simple indicator is calculated. Price is usually easily accessible in our information age, and it is typically the easiest input to be obtained online. Earnings per share is an indicator which often requires a little bit of additional research before applying in the equation. One of the first questions that investors need to ask themselves before looking at P/E ratios is to gain an understanding of the denominator in the equation.