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


by daniela , in category: Stocks and Equities , a year ago

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

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1 answer

by jaylin.bartell , a year ago


A stock's price-to-operating income ratio, also known as the P/OI ratio, is a financial metric used to evaluate the valuation of a company's stock. It is calculated by dividing the market price per share of the stock by the operating income per share.

The operating income is a measure of a company's profitability derived from its core operations, excluding non-operational expenses such as taxes and interest. It represents the revenue generated after deducting operating expenses.

The P/OI ratio is used by investors to assess a stock's valuation relative to its operating income. A high P/OI ratio suggests that investors are willing to pay a premium for the stock, indicating a potentially overvalued stock. Conversely, a low P/OI ratio indicates a potential undervaluation. However, the interpretation and comparison of P/OI ratios vary between industries and companies, so it is crucial to consider other factors and analyze the overall financial performance before making investment decisions.