The price of a share of stock divided by the corporation's earning per share of stock will give you what?

• A. Price-Earnings Ratio
• B. Earnings Per Share
• C. Market Capitalization
• D. Dividend Yield

Answer: (D)

Understanding what price relative to earnings tells you is key. The price of a share divided by the company's earnings per share yields the price-earnings ratio, a standard way to Value a stock by showing how many dollars investors will pay for each dollar of earnings. For example, if a stock trades at $120 and its earnings per share are $6, the P/E ratio is 20, meaning investors are paying 20 times the yearly earnings for that share. This ratio is useful for comparing how aggressively different stocks are valued relative to their earnings and can reflect growth expectations or perceived risk.

Dividend yield, on the other hand, uses annual dividends per share divided by the price, not price divided by earnings. Market capitalization is the price per share times the total number of shares outstanding, and earnings per share is the earnings divided by shares outstanding—these are related concepts but describe different measures.