The Price to Earnings Ratio, also known as P/E ratio or multiple, figures the likeliness of future business growth verses stagnation. Companies calculate the PE Ratio by taking market value per share and dividing it by the earnings per share. The higher the P/E, the more the market is willing to pay for the company's earnings. A company losing money cannot use this tool. You can gauge an average price to earnings ratio by expecting 20 to 25 times the earnings.

The P/E helps predict if a stock is rising or is overvalued. Use companies within the same industry for comparison between each other and also against historical norms. If the entire sector is high, there may be a "bubble". If a company performs well compared to its counterparts, it may be a good investment. Forward P/E uses industry analysis to make an educated guess as to where a company is financially headed. Choose stocks yourself by doing the following:

1. Look at the P/E ratio using expert analysis for companies

2. Try a stock simulator choosing stocks based on P/E ratios

3. Make stock purchases using P/E ratios

Action Steps
The best contacts and resources to help you get it done

Look up the price to earnings ratio of any company

A price to earnings ratio consultant figures forward P/E to predict where company profits may go over the next couple of years. These projections are available to you online to help you make educated stock picks.

I recommend: Look at forward and trailing price to ratio information for any company using Morningstar. All you need to begin is the company's stock code. You can also use price to ratio earnings consultant advice to project stock values via NASDAQ's website using the company stock code.

Use price to earnings ratio training to practice choosing stocks via a stock simulator

With your new found price to earnings ratio advice, try your hand at choosing stocks without risking real money with stock simulators. Several companies offer free trials and help with price to earnings ratio knowledge.

I recommend: Try your hand at international trading by opening a demo account for free. FX Pro allows you to trade within the European Union. OptionsXpress offers virtual trading without the risk with their free trial offer.

Use price to earnings ratio information to choose your stocks

After using expert advice and a simulation tool, try choosing your own stocks with online stock trading.

I recommend: Start trading now with TD Ameritrade, E*TRADE or ING Direct. All three companies have online applications which take around 10 to 15 minutes to complete. Then, you can begin trading right away online.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Keep in mind that price to earnings ratio is only one indicator and may not tell the whole story about a company. Experts say not to rely too heavily on one tool to make determinations about a company.