It is a ratio that establishes a comparison between the price of a stock and its net income, that is, the number of times a company’s after-tax profit is contained in the price of one of its shares. It is an indicator of what the market would pay for each monetary unit of its profit. The PER of a stock is calculated by dividing the share price by the net income per share, net of taxes. It is one of the most widely used multiples to estimate whether a company’s shares are expensive or cheap and to compare similar companies in the same sector. The higher the PER, the lower the net profits relative to its current price. The PER, multiplied by the entity’s net profit, facilitates the obtaining of an indicative value of a company.
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