Which of the following is a key metric used in equity valuation?

The price-to-earnings ratio (P/E) is a fundamental metric in equity valuation because it measures the relationship between a company’s current share price and its earnings per share (EPS). This ratio provides investors with a quick way to assess whether a stock is overvalued, undervalued, or fairly priced relative to its earnings. A high P/E ratio may indicate that a stock's price is high relative to earnings, which could signal overvaluation, while a low P/E may suggest undervaluation or lower growth expectations. This metric is widely employed by analysts and investors to make informed investment decisions, comparing P/E ratios across companies in the same industry to gauge their relative value.

Other options, while relevant in different financial contexts, do not serve as primary metrics for equity valuation. Interest rates influence overall market conditions and the cost of capital but do not directly provide insight into a specific company's valuation. Gross Domestic Product (GDP) reflects the overall economic health of a country but is too broad to influence individual equity valuations directly. Dividend yield is indeed a metric valuable for assessing income-generating investments, especially for dividend-paying stocks, but it does not encompass overall company performance like the P/E ratio does. Therefore, P/E stands out as a quintessential