What does it mean...

[comp652]

...when people say that such and such stock is trading at "x times their earnings"?

I hear this a lot and tried to look it up on investopedia but didn't even know what to enter.

For example people will say that stock "xyz is trading at 16 times their earnings" etc.

Thanks

Comp

 

[Hook N. Sinker]

Quote from comp652:

...when people say that such and such stock is trading at "x times their earnings"?

I hear this a lot and tried to look it up on investopedia but didn't even know what to enter.

For example people will say that stock "xyz is trading at 16 times their earnings" etc.

http://finance.yahoo.com/q/ks?s=CAT

Price to earnings ratio is one measure of performance of a business.

Closing price of Caterpillar (symbol CAT) stock is $ 62.12 / share.
Diluted EPS (earnings per share) is $ 5.06 / share.

62.12 / 5.06 = 12.27 or price is 12.27 times earnings.