The document defines and explains the price to earnings (P/E) ratio, which is the price of a stock divided by its earnings per share. It provides an example comparing the P/E ratios of two companies, Widget and Gizmo, based on past and projected earnings. However, it cautions that P/E ratios of individual stocks can be misleading because past earnings and projections may not accurately predict the future. P/E ratios may be more useful for evaluating the overall stock market valuation and identifying when the market as a whole is overvalued or undervalued.