
P/E Ratio: What Is It?
P/E is short for the ratio of a company's share price to its pershare earnings. As the name implies, to calculate the P/E, you simply take the current stock price of a company and divide by its earnings per share (EPS):
P/E Ratio =  Market Value per Share 
Earnings per Share (EPS) 
Most of the time, the P/E is calculated using EPS from the last four quarters. This is also known as the trailing P/E. However, occasionally the EPS figure comes from estimated earnings expected over the next four quarters. This is known as the leading or projected P/E. A third variation that is also sometimes seen uses the EPS of the past two quarters and estimates of the next two quarters.
There isn't a huge difference between these variations. But it is important to realize that in the first calculation, you are using actual historical data. The other two calculations are based on analyst estimates that are not always perfect or precise.
Companies that aren't profitable, and consequently have a negative EPS, pose a challenge when it comes to calculating their P/E. Opinions vary on how to deal with this. Some say there is a negative P/E, others give a P/E of 0, while most just say the P/E doesn't exist.
Historically, the average P/E ratio in the market has been around 1525. This fluctuates significantly depending on economic conditions. The P/E can also vary widely between different companies and industries.


Earnings Per Share  EPS
The portion of a company's profit allocated to each outstanding ... 
Return On Investment  ROI
A performance measure used to evaluate the efficiency of an investment ... 
Bid Wanted
An announcement by an investor who holds a security that he or ... 
Net Present Value  NPV
The difference between the present value of cash inflows and ... 
Total DebttoCapitalization Ratio
An indicator that measures the total amount of debt in a company’s ... 
PriceToCashFlow Ratio
The ratio of a stock’s price to its cash flow per share. The ...

How should a company budget for capital expenditures?
Learn the difference between capital expenditures and operational expenses, and discover the importance of budgeting for ... 
What happens to my annuity after I die?
Understand the different types of annuity payment plans and what payments or additional benefits are payable to your beneficiaries ... 
What is the first day of the quarter?
Learn when the first day of the quarter is. Explore why investors and analysts prefer to compare results yearoveryear due ... 
What is the difference between a quarter and a year in finance?
Examine the difference between a fiscal quarter and a fiscal year. Learn why investors examine both quarterly and annual ...