The price to earnings ratio, or P/E ratio, helps you understand if a stock is fairly priced. It compares the stock price to how much profit the company earns. How It Works The P/E ratio is calculated by dividing the stock price by the earnings per share (EPS). P/E = Price per Share ÷ Earnings per Share If a stock is trading at 50 dollars and the company earns 5 dollars per share, the P/E ratio is 10. That means you are paying 10 dollars for every 1 dollar the company earns each year. What the P/E Ratio Tells You A low P/E (for example, 8 or 10) may suggest the stock is cheap or undervalued A high P/E (for example, 30 or 40) may suggest the stock is expensive or investors expect big growth However, different industries have different average P/E ratios. A tech company like Nvidia might have a P/E of 35, while a bank like Westpac might have a P/E around 12. Example Company A has a share price of 20 dollars and earns 2 dollars per share. Company B has a share price of 40 dollars and earns 1 dollar per share. Company A: P/E = 20 ÷ 2 = 10 Company B: P/E = 40 ÷ 1 = 40 Company A is cheaper in terms of earnings. But Company B might be growing faster, which explains the higher P/E. Key Takeaways The P/E ratio compares stock price to company earnings A lower P/E may signal better value, but context matters Use the P/E ratio to compare companies in the same industry It is a useful starting point, not a complete answer

A balance sheet shows what a company owns, what it owes, and how much is left for shareholders. It is one of the three main financial statements investors use to understand a business. The Balance Sheet Formula Assets = Liabilities + Shareholders' Equity  Assets are what the company owns (cash, buildings, inventory) Liabilities are what the company owes (loans, unpaid bills) Equity is the value left for shareholders after debts are paid Example Here is a simple balance sheet for a company: Assets: 5 million dollars Liabilities: 3 million dollars Shareholders' Equity: 2 million dollars This tells us that the company has 5 million in total assets, owes 3 million, and has 2 million in value left over for shareholders. Why It Matters Looking at the balance sheet helps you answer questions like: Does the company have too much debt? Is it growing its assets over time? Does it have enough cash to handle short-term problems? A company with strong assets, low debt, and solid equity is usually in better shape than one with heavy borrowing and little value left for shareholders. Key Takeaways The balance sheet shows a company’s financial health at a point in time Assets minus liabilities equals shareholder equity Look for companies with more assets than debts Use it alongside other statements to make better investing decisions