The price-to-earnings ratio is one of the first numbers people quote about a share. It is simple to calculate and easy to misuse.
NSE Indices defines the price-earnings ratio as the ratio of a company's share price to its earnings per share. It is used to see how expensive a stock is compared with others in the same industry. For an index, NSE calculates it as market capitalisation divided by earnings, using the trailing four quarters of consolidated results where available.
Earnings include one-time items. Reliance's reported profit for June 2026 was ₹20,946 crore, down about 22%, because of a one-time gain in the base period. On a recurring basis profit was ₹23,196 crore, up 6.1%. A P/E using the wrong earnings gives the wrong answer.
When earnings are negative, the ratio is not meaningful. Swiggy reported a net loss of ₹791 crore in the June 2026 quarter, so a normal P/E does not apply. NSE does not publish an index P/E when the index's total earnings are negative.
A higher P/E can be fair for a business with faster growth, and a low P/E can be a warning. The number alone does not say which.
P/Es should be compared within an industry, on the same basis (consolidated or standalone, same period).
Reliance: media release and The Economic Times. Swiggy loss: Business Standard.
I will use P/E as a first filter: what are investors assuming about growth, and what happens to the ratio if earnings fall? I will not quote a current P/E in this notebook, because share prices change every day and the number would go stale.
My biggest lesson: P/E is simple arithmetic, but the hard part is deciding which earnings to use and whether they will last.
Next I will pair P/E with growth and cash flow, so a cheap-looking ratio does not fool me.
A commerce student's learning notebook. Not investment advice or a recommendation to buy or sell any share.