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What Is the PE Ratio? How Is It Calculated and Why

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Essay

What is the PE ratio? How is it calculated and why is it that the PE ratio for a privately held company often cannot be calculated?


Definitions:

Labor

Refers to the human effort, both physical and mental, used in the production of goods and services.

Output

The amount of goods or services produced by a company, industry, or economy within a certain period.

Revenue

The total income generated by a company or organization from its normal business operations.

Marginal Product

The additional output that is produced by adding one more unit of a specific input, keeping all other inputs constant.

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