If a company has a stock price of $20 and its EPS is $1, what is its Price to Earnings ratio (PE)?

To determine the Price to Earnings (P/E) ratio, you divide the stock price by the Earnings Per Share (EPS). In this case, the stock price is $20 and the EPS is $1.

The formula for the P/E ratio is:

[ P/E = \frac{\text{Stock Price}}{\text{EPS}} ]

Substituting in the given values:

[ P/E = \frac{20}{1} = 20 ]

Therefore, the P/E ratio of the company is 20. This means that investors are willing to pay $20 for every $1 of earnings generated by the company, indicating their expectations about the company's future growth potential and profitability. A P/E ratio of 20 is often interpreted as having a balance between growth expectations and risk, as it reflects how much investors value the company's earnings relative to its stock price. Understanding this ratio is crucial for evaluating investment opportunities and comparing them with other companies or industry benchmarks.