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Price-Earnings Ratio

The price of a security per share at a given time divided by its annual earnings per share. Often, the earnings used are trailing 12 month earnings, but some analysts use other forms. The P/E ratio is a way to help determine a security's stock valuation, that is, the fair value of a stock in a perfect market. It is also a measure of expected, but not realized, growth. Companies expected to announce higher earnings usually have a higher P/E ratio, while companies expected to announce lower earnings usually have a lower P/E ratio. See also: PEG


1. In stock-index futures, the number multiplied by the futures price to determine the value of the contract. For example, the $500 multiple of the Standard & Poor's Midcap Index is multiplied by the futures price to determine the value of one contract. Thus, a futures price of $230 would yield a contract value of $115,000 ($500 × $230).


A stock's multiple is its price-to-earnings ratio (P/E). It's figured by dividing the market price of the stock by the company's earnings.

The earnings could be the actual earnings for the past four quarters, called a trailing P/E. Or they might be the actual figures for the past two quarters plus an analyst's projection for the next two, called a forward P/E.

Investors use the multiple as a way to assess whether the price they are paying for the stock is justified by its earnings potential. The higher the multiple they are willing to accept, the higher their expectations for the stock.

However, some investors reject stocks with higher multiples, since it may be impossible for the stock to meet the market's expectations.

References in periodicals archive ?
The cause of death was multiple organ failure due to multiple drug overdose.
Shropshire coroner John Ellery, giving a narrative verdict, said Mrs Owen, of Oswestry, died of multiple organ failure due in part to arthritis and its treatment.
The mortal remains of Deshmukh, who passed away at a Chennai super-specialty hospital following multiple organ failure on Tuesday, would be consigned to flames at around 4 p.
Ryan Reidy, aged 23, died from multiple organ failure after a 12-hour binge at a friend's Birmingham flat.
A post mortem revealed that Mr Ali died from multiple organ failure due to pneumonia caused by his injuries.
The 50-year-old, of Newcastle's West End, died from severe multiple organ failure after taking too many of the tablets for a heart condition.
Kerstin, 19 - the eldest of seven kids Fritzl had with daughter Elisabeth - is being treated for multiple organ failure.
Mrs Jones, of Crystionydd, Penycae, Wrexham, died on January 14 at Wrexham Maelor Hospital of multiple organ failure due to legionella pneumonia with a secondary cause of gastric erosions.
Ian York, who developed cerebral palsy after being beaten as a baby, died from multiple organ failure due to septicaemia at Alder Hey children's hospital, Liverpool, in April.
To the Editor: Toxic shock syndrome (TSS), which can be life threatening, is defined by clinical and laboratory evidence of fever, rash, desquamation, hypotension, and multiple organ failure caused by Staphylococcus aureus toxins.
He was taken back into surgery, but suffered multiple organ failure and died on April 28.
Campaigner Claire Rayner told yesterday how she is now "on the mend" after a serious illness left her with multiple organ failure.

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