What does the Price Earnings Ratio measure?

The Price Earnings Ratio (P/E Ratio) measures the market price per share in relation to the earnings per share (EPS) of a company. This ratio provides valuable insights to investors about how much they are willing to pay for each dollar of earnings, thereby indicating how the market values the company’s profitability.

A higher P/E ratio may suggest that investors expect future growth in earnings, while a lower P/E might indicate that the market does not anticipate significant growth. This ratio is a crucial tool for comparing the valuations of companies within the same industry, allowing investors to assess whether a stock is overvalued or undervalued relative to its peers.

The other options presented do not pertain to the P/E ratio. The net income compared to sales addresses profitability margins, gross profit against net sales relates to operational efficiency, and average total assets over time concerns asset management rather than performance valuation, making them unrelated to the P/E ratio's primary focus.