P/E Ratio financial definition of P/E Ratio. P/E Ratio finance term by the Free Online Dictionary.

P/E ratio

Current stock price divided by trailing annual earnings per share or expected annual earnings per share. Assume XYZ Co. sells for $25.50 per share and has earned $2.55 per share this year; $25.50 = 10 times $2.55. XYZ stock sells for ten times earnings.

P/E ratio

See price-earnings ratio.

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

Price-Earnings Ratio (P/E Ratio)

What Does Price-Earnings Ratio (P/E Ratio) Mean?

A popular valuation ratio of a company's current share price compared with its per-share earnings. It is calculated as shown here:

For example, if a company currently is trading at $43 a share and earnings over the last 12 months were $1.95 per share, the P/E ratio for the stock will be 22.05 ($43/$1.95). EPS usually is calculated from data from the previous four quarters (trailing P/E), but sometimes future earnings estimates are used (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates for the next two quarters. P/E sometimes is called the price multiple or earnings multiple.

Investopedia explains Price-Earnings Ratio (P/E Ratio)

In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared with companies with a lower P/E. However, the P/E ratio does not tell the whole story. It is more helpful to compare the P/E ratios of companies in the same industry, the overall market, or the company's own historical P/E. It would not be useful for investors to compare the P/E of a technology company (high P/E) to that of an electric utility company (low P/E) as each industry has a much different growth potential. The P/E sometimes is referred to as the multiple, because it shows how much investors are willing to pay per dollar of earnings. If a company trades at a multiple (P/E) of 20, this means that investors are willing to pay $20 for $1 of current earnings. Note: The earnings number in the denominator (earnings) is susceptible to manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.