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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
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


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).
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
References in periodicals archive ?
Maternal adjustment to a multiple birth. Early Child Development and Care, 79, 1-11.
However, women who decide to continue large multiple birth pregnancies are not met with criminal charges, instead they are praised and provided financial and social support for their choice.
Women aged 45 and over were most likely to have a multiple birth, the ONS said.
"The increase in multiple birth rates may be explained by changes in maternal age and increased use of ART (Assisted Reproductive Technology)."
However, the mortality rate for multiple births was five times higher than for singletons, with 20.4 deaths per 1,000 live births compared with 4.0 deaths per 1,000 live births.
However, empirical data suggest that competition among IVF clinics may not have a significant effect on multiple birth rates.
Melanie, 30, said: "Where we live, there is no help for multiple birth babies, so it's great to know that the RVI is there."
IVF clinics could see their multiple birth rates capped under proposals set out by the fertility regulator.
The contribution of ART to the overall triplet and higher-order multiple birth ratio was estimated to be 38.7% in 1996 and 43.3% in 1997, a substantial increase from the estimated 22% for 1990 and 1991 (Table 2).

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