The price-earnings ratio (P/E ratio) is the measure of a company’s current stock price in relation to its per stock earnings. In the sample given, P/E Ratio of Favorita candy's stock is 18% and is expected to earn $4.00 per share this year. The price of the stock is calculated as follows:
Market Value per Stock / Earnings per Stock = P/E ratio
Let X the price value of stock in $
Earnings per stock = $4
P/E Ratio = 18%
X/4 = 18
X = 18X 4
X = 72