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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 ?
All youth in this study of aspirations had been exposed to multiple risk influences and showed significant adjustment difficulty.
Little, however, is known about predictors of such multiple risk activities (Galambos & Tilton-Weaver, 1998).
Patients with multiple risk factors, including diabetes, face a greater
However, patients with multiple risk factors treated with 7+3 did much worse, with fewer CRs, no CRi's, and a substantially higher rate of early death.
Dr Larry Distiller, managing director of the Centre for Diabetes in Johannesburg, said: 'This drug has the potential to offer a new approach to the management of type 2 diabetes by addressing multiple risk factors.
People are complex, and as such, their exposure to multiple risk and protective factors steers them toward certain behaviors.
It has become increasingly clear over the past several years, however, that multiple risk factors, both genetic and environmental, can produce parkinsonism (Figure 1).
Given the documented level of goal attainment, a Multiple Risk Reduction Program was implemented in May of 2003.
Recognize and analyze young offender behavior that is a result of the youth's exposure to multiple risk factors;
Women with multiple risk factors for blood clots were most at risk of miscarrying.
The men studied by Walker's group were a subset of participants in the Multiple Risk Factor Intervention Trial (MRFIT), an even larger study evaluating measures to prevent heart disease among men at risk for the disorder because of cigarette smoking, elevated blood cholesterol, or elevated blood pressure.
Ability to segment accounts according to user-defined criteria for easier maintenance and to review matrix performance using multiple risk thresholds

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