In stocks, P/E ratio can be taken into account to determine the price-to-earnings ratio of a company’s stock. Basically, the P/E ratio tells you the dollar amount you can expect to invest in a company in order to have an ownership share that equates to one dollar of the company’s earnings. It is calculated by dividing the price of a company’s stock by the company’s earnings per share. For example, if a company’s stock is trading at $25 per share and the company’s earnings per share is $1, then the P/E ratio for the stock is 25 (25/1).