Three ratios settle most arguments about PSX shares. None of them needs more than primary-school maths — the skill is knowing what each one leaves out.
P/E — price per rupee of earnings
The price/earnings ratio divides the share price by earnings per share (EPS) over the last twelve months. A P/E of 5.46 (Indus Motor in our snapshot) means you pay Rs 5.46 for every rupee of annual earnings; a P/E of 21.27 (Unilever Pakistan Foods) means Rs 21.27. Lower is not automatically better: a very low P/E often means the market expects earnings to fall, while a high P/E prices in growth. Notice the inversion: earnings yield (EPS ÷ price) lets you compare a share directly with a T-Bill. INDU's earnings yield at that snapshot was about 18% against 12.89% on 12-month T-Bills — that gap is the market charging you for the risk that earnings disappoint.
Dividend yield — cash back per rupee invested
Dividend yield divides the dividend per share (DPS) by the price. POL's Rs 142.50 DPS on a Rs 660.95 price gave 13.25% in the screener feed — real cash, if the dividend repeats. The two traps are on our dividend hub: yields inflated by one-off special dividends, and yields that look huge because the price has collapsed ahead of bad news. Always ask whether the dividend is covered.
Payout ratio — the coverage question
Payout = dividends ÷ earnings. Unilever's 89.89% payout is generous but covered by earnings. Nestlé Pakistan's 181.51% in the same snapshot means it paid out nearly twice what it earned in the period — funding the difference from reserves. Companies can do that occasionally; they cannot do it as a habit. As a rough map: below 30% suggests a growth company reinvesting (or a miserly one); 40–70% is the classic sustainable income zone for mature PSX names; persistently above 100% is a countdown, not a yield.
Putting the three together
Take a real snapshot line: INDU — price Rs 1,818, EPS Rs 333.67, DPS Rs 210. P/E = 5.46 (cheap against the index at 8.16). Yield = 11.11% (nearly double the index's 6.10%). Payout = 210 ÷ 333.67 ≈ 63% (comfortably inside the sustainable zone). Three numbers, thirty seconds, and you have a coherent first impression: a cash-generative company priced cautiously. What the ratios cannot tell you — whether next year's earnings hold up — is what results filings and research are for. Start a shortlist in the screener, then read the announcements before you act on it.