How is the Price-to-Earnings (P/E) Ratio calculated?

The Price-to-Earnings (P/E) Ratio is a key measure used by investors to value a company's stock and assess its profitability. The correct method for calculating the P/E Ratio is indeed by dividing the price per share of the stock by the earnings per share (EPS).

This ratio provides insight into how much investors are willing to pay for each dollar of earnings, reflecting market expectations about a company's future earnings growth. A higher P/E ratio may indicate that investors expect higher growth in the future, while a lower P/E could suggest the opposite or that the stock is undervalued.

In terms of the other options, they do not accurately represent the P/E Ratio calculation. Total assets are not part of this measurement, and dividing earnings per share by the price per share would yield an inverse ratio that does not serve the typical analysis intended with the P/E Ratio. Net income divided by price per share also does not take into account the per-share basis necessary for earnings, making it an inappropriate calculation for establishing the P/E. Thus, the selection of price per share divided by earnings per share is aligned with standard financial analysis practices.