Future Business Leaders of America (FBLA) Business Calculations Practice Test

The P/E, or price-to-earnings ratio, is a key financial metric that helps investors assess the relative value of a company's shares in relation to its earnings. It is calculated by taking the current market price of a company's stock and dividing it by the company's current earnings per share (EPS).

This ratio indicates how much investors are willing to pay for each dollar of earnings, making it a popular tool for determining whether a stock is overvalued or undervalued compared to its peers or historical averages. A high P/E ratio may suggest that the market expects future growth, while a low P/E ratio may indicate that the stock is undervalued or the company is experiencing difficulties.

The other options describe scenarios that do not accurately reflect the standard calculation of the P/E ratio. The correct answer specifically focuses on the current price relative to current earnings, which is the definition used by investors and analysts in evaluating stocks.