The forward price to earnings (P/E) is a valuation metric for measuring and comparing a company's earnings–using expected earnings per share–to the current stock price. Companies forecast their earnings for each quarter using earnings per share (EPS), which is a company's profit divided by the number of outstanding common stock shares.

If a company's EPS is expected to rise, it typically means that the profit or net income should increase relative to the number of shares outstanding. The forward P/E ratio measures the relationship of the current stock price to the forecasted EPS figures. Investors can calculate a company's forward P/E ratio for the next quarter or year using Microsoft Excel.

## Understanding the Forward P/E Ratio

The forward price-to-earnings (forward P/E) is similar to the price-to-earnings ratio (P/E). The P/E ratio measures the relationship of the current stock price to the current or historical EPS. You can calculate a company's earnings per share using the data provided from their financial statements, but companies will typically calculate the EPS for you in their reported earnings.

Companies also provide investors with the expected earnings per share for each of the upcoming quarters. From there, investors can calculate the forward P/E ratio as follows:

• Forward P/E ratio: Current Share Price / Expected EPS for the period.

The forward P/E ratio is helpful because it can signal to investors that a company's stock price is high or low when compared to the expected EPS in the upcoming quarters. Investors can also compare the forward P/E of a company to other companies within the same industry to get a sense of whether the stock price is overvalued or undervalued.

Company executives often adjust their EPS forecasts–either up or down–throughout the year. Investors who follow a company's forward P/E can determine whether the stock price is accurately valued relative to the newly adjusted EPS forecasts. As a result, the forward P/E ratio can be a more accurate reflection of a company's valuation versus using the historical P/E ratio.

## How to Calculate a Forward P/E Ratio in Excel

In Microsoft Excel, first, increase the widths of column A, B, and C by highlighting the entire sheet. Click on the corner of the worksheet (to the left of column A and above the numeral 1 in row one). Once the sheet is highlighted, right-click on the top of any column (their labeled A, B, C) and a dropdown menu will appear. Left-click on "Column Width" from the dropdown and change the value to 30.

Before calculating the ratio, in Excel, we must first establish the column and row heading names.

### Row 1:

Write the title of the sheet; "Calculating the Forward P/E Ratio."

### Row 2:

Write the headings, including Company, the data in the formula, and the calculation results. The headings should be labeled and located as follows:

• A2 = Company
• B2 = Stock Price (or Market Price)
• C2 = EPS (expected)
• D2 = Forward P/E
• A3, A4, and so on will be the locations of the company names.

As an example, let's say Company A has a current stock price of \$50 and an expected EPS of \$2.60 for a particular quarter.

### Row 3

We can write in the data for Company A into our spreadsheet:

• Cell A3 = Write Company A's Name
• Cell B3 = \$50
• Cell C3 = \$2.60

Calculate the Forward P/E in Excel:

• As a reminder, the formula to calculate the forward P/E Ratio is as follows: Market Share Price / Expected EPS.
• Place your cursor in cell D3.
• Please note that all formulas in Excel begin with the equal sign.
• Type the forward P/E formula in cell D3 as follows: =B3/C3
• Press Enter or Return on your keyboard

See the screenshot below for how the formula should look in cell D3: