Define the 'price-to-earnings' (P/E) ratio.

The price-to-earnings (P/E) ratio is a crucial financial metric used in evaluating a company's valuation relative to its earnings. It is calculated by dividing the market price per share by earnings per share (EPS). This ratio provides investors with insight into how much they are willing to pay for each dollar of earnings, allowing them to assess whether a stock is overvalued or undervalued compared to its earnings.

A higher P/E ratio may indicate that investors expect future growth and are willing to pay a premium for the stock, while a lower P/E might suggest that the stock is undervalued or that the company is facing challenges. Thus, the P/E ratio serves as a useful tool for comparing companies within the same industry or for assessing historical performance trends for individual companies.

Other options, such as the ratio of total assets to total liabilities or measures of interest coverage, refer to different financial concepts that do not pertain to the evaluation of earnings relative to stock price. The percentage of net income returned as dividends focuses on dividend policies rather than the relationship between price and earnings, further distinguishing these financial metrics.