What is P/E Ratio?
The Price-to-Earnings (P/E) ratio measures how much investors pay per dollar of a company's earnings. A high P/E implies the market expects strong future growth; a low P/E may signal undervaluation or low growth expectations. There are two variants: trailing P/E uses the last 12 months of earnings, while forward P/E uses next year's consensus estimate. P/E is most meaningful when compared within the same sector: a 30× P/E is ordinary for a high-growth tech company but expensive for a utility. It cannot be computed when earnings are negative, which is a key limitation.
Formula
P/E Ratio = Price per Share / Earnings per Share (EPS)
Price per Share = Current market price
EPS = Net Income / Diluted Shares Outstanding
Calculator
How to Use
- 1Get the stock price: Use the current market price or the closing price of the period you are analysing.
- 2Find EPS: Use diluted EPS from the income statement. For trailing P/E use TTM EPS; for forward P/E use analyst consensus.
- 3Divide: Price ÷ EPS gives the P/E ratio. A result of 20 means investors pay $20 for every $1 of earnings.
- 4Compare: Benchmark against the sector median and the company's own historical P/E range.
Worked Example
Example: Stock at $150, EPS $7.50
Price
$150
EPS
$7.50
P/E = 150 / 7.50 = 20×. Investors are paying 20 times last year's earnings. Whether that is cheap or expensive depends on peers and growth rate; compare to the PEG ratio for a growth-adjusted view.
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Figures from the most recent annual filing (10-K / 20-F), sourced directly from SEC EDGAR.