The price/earnings ratio (P/E) is typically used by serious investors to determine if the company is a solid choice for investment opportunities. This is the most commonly reported statistic for investment professionals based on the valuation of a company. Personally, I feel that this is the best way to determine the valuation as the bottom line and profits drive the market and attraction to the investment. The P/E ratio is easy to understand and simple to research when considering the investment that is intriguing to me. While this is not the only stat to rely on during the process of determining a businesss value, it is the purest. Other stats that are relevant to the investor include but are limited to: Price-to-book ratio (P/B): which measures whether a stock is over or undervalued. Debt-to-equity ratio: which outlines how a company manages their current finances. Free cash flow: which is the cash that is produced by the company. PEG ratio: the price to earnings to growth ratio is a modified P/E ratio with the companys forecasted growth. The Bottom Line: Adding all these other stats together will help the investor determine what the bottom is and if the company is a good investment. In conclusion, I think the P/E is a solid basis, but should not be the only factor when looking for an investment option.

References:

Elmerraji, J. (2018, December 21). 5 must-have metrics for value investors. Retrieved January 29, 2019, from https://www.investopedia.com/articles/fundamental-analysis/09/five-must-have-metrics-value-investors.asp (Links to an external site.)Links to an external site.

Investopedia. (2018, March 02). Investment Valuation Ratios: Price/Earnings Ratio. Retrieved January 29, 2019, from https://www.investopedia.com/university/ratios/investment-valuation/ratio4.asp (Links to an external site.)

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