What Is Price-to-Earnings Ratio?
What Is Price-to-Earnings Ratio? The price-to-earnings ratio is a valuation ratio that compares a company's current share price to its earnings per share (EPS). The price-to-earnings ratio is also known as the earnings multiple or the price multiple. Investors and analysts use P/E ratios to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company to its own track record, as well as to compare aggregate markets to one another or over time. P/E can be calculated in two ways: trailing (back into the past) or ahead (anticipated). Formula and Calculation of the P/E Ratio. This process's formula and calculation are as follows. P/E Ratio = Earnings per share/Market value per share To calculate the P/E ratio, simply divide the current stock price by the earnings per share (EPS). The P/E Ratio Explanation The price-to-earnings ratio (P