- 1). Obtain a copy of the income statement for the company that you want to evaluate. You may be able to get a copy from the company's website or you could get one from the Securities and Exchange Commission website. This will provide you with the data you need to make the calculations and comparisons.
- 2). Locate the earnings for the company. If the income statement has the earnings per share figure, this is actually what you need. If not, you can take the earnings for the company and divide that by the number of shares outstanding.
- 3). Look up the current stock price that the stock is trading for the market. You can simply type the stock symbol into a search engine and get a quote in most cases.
- 4). Divide the stock price of the company by the earnings per share. This will tell you the price-earnings ratio. You would like a stock with a low price-earnings ratio. This tells you that the company is earning more for a smaller investment on your part.
- 5). Compare that figure to other companies' price-earnings ratios. When you make a comparison, try to keep the comparisons to companies in the same industry. If the company has a low price-earnings ratio compared to the other companies, it may be a desirable investment.
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