Price to earnings ratio is an important financial indicator that investors must master, also known as the price to earnings ratio, which is the ratio of stock price to earnings per share. The price to earnings ratio reflects how many years our investment can be fully recovered through dividends when the dividend payout ratio is 100% and the received dividends are not reinvested, while the earnings per share remains unchanged. In general, the lower the price to earnings ratio of a stock, the lower the market price relative to the stock's profitability, indicating a shorter investment payback period, lower investment risk, and greater investment value of the stock; On the contrary, the conclusion is the opposite.

There are two methods for calculating the price to earnings ratio. One is the ratio of stock price to earnings per share in the past year. The second is the ratio of stock price to earnings per share for the current year. The former uses the previous year's earnings per share as the calculation standard, which cannot reflect the changes in stock investment value due to changes in current and future earnings per share, and therefore has a certain lag. Buying stocks is buying the future, so the profitability level of listed companies in the current year has significant reference value. The second type of P/E ratio reflects the actual investment value of stocks. Therefore, how to accurately estimate the earnings per share of a listed company in the current year has become the key to grasping the value of stock investment. The earnings per share of a listed company in the current year are not only related to the company's profitability, but also closely related to the changes in the company's share capital. After the expansion of the share capital of a listed company, the earnings per share will decrease, and the company's price to earnings ratio will correspondingly increase. Therefore, after a listed company issues new shares, offers bonus shares, transfers bonus shares from the housing provident fund, and rights issues, it is necessary to timely dilute earnings per share and calculate the correct and valuable price to earnings ratio.