Price to earnings ratio is considered one of the most important valuation ratios for the investors including individuals, analysts etc. There have been many researches that show the relationship between price to earnings ratio and different variables that can affect and determine the ratio, in order to help the investors decide which factors should be accounted for while deciding to invest in the market equity. This study attempts to explore the relationship between different variables and how they affect the price to earnings ratio in textile sector of Pakistan. The variables that were selected are; dividend payout, market price variance, debt to total assets, debt to equity, earnings per share growth (EPS growth), the market value of equity (also known as market capitalization) and book to market value of equity. In this study the sample of 30 companies was selected from 1-07-2001 to 1-06-2011 which is FY 2002 – FY 2011 making the values of 300 samples for each variable. The method that was chosen is ordinary least square regression (OLS) and correlation using the SPSS statistical tool for determining the result of each variable with the price to earnings ratio. The reason for choosing the textile sector was that this sector plays a vital role in the economy of Pakistan. From the beginning the textile sector has been under special attention by the government still it is not able to be at the top in comparison with the textile sector with other countries. There are many economic crises factors that greatly affect this sector including the power and gas outrages which have cost textile sector great losses. The investments that the textile sector was receiving from the government have been wrongly invested in the spinning sectors of textile. Instead they should be investing in the value added support for the textile. And there are many other factors that also affect the study in this sector. From the inferences of the parametric evaluation we can say that the textile sector does not show the expected result because of the instability in the economy and the effect of the financial crisis that took place in 2007, causing the change in the investors’ decision, making other factors most influential in explaining the price to V earnings ratio. To further explain the aforesaid result, we considered the data for five years in which the textile sector was relatively stable and the result shows that the dividend payout, debt to total assets, debt to equity, EPS growth rate, market value of equity and book to market value of equity remained the most important determinants of price to earnings ratio. The same result was interpreted from time-series analysis of the textile sector. This study will be beneficial for the researchers to analyze further with other variables. Furthermore, this study will facilitate the investors to raise confidence in

BBA