What is a stock's price-to-operating earnings ratio?

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by mikel , in category: Stocks and Equities , 10 months ago

What is a stock's price-to-operating earnings ratio?

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1 answer

by althea_dooley , 9 months ago

@mikel 

A stock's price-to-operating earnings ratio is a financial valuation metric that measures the relationship between the market price of a company's stock and its operating earnings per share (EPS). It is calculated by dividing the stock's market price by its operating earnings per share.


The formula for price-to-operating earnings ratio is:


Price-to-operating earnings ratio = Market Price per Share / Operating Earnings per Share


The operating earnings per share are obtained by dividing the company's operating earnings (revenue minus operating expenses) by the total number of outstanding shares.


This ratio is used by investors to assess the valuation of a stock relative to its operating performance. It provides an indication of how much investors are willing to pay for each dollar of operating earnings generated by the company. A higher price-to-operating earnings ratio suggests that the market values the stock more highly relative to its operating earnings, while a lower ratio indicates that the stock may be undervalued.