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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 ?
18 Calculate the following: multiply 10 by 4, subtract 22, multiply by 4, and finally divide by 8?
They have great ability to multiply and transform into specialized cells.
Multiply the length by the width by the height (all in feet) and divide by 400 to 500, depending on kind of hay and how long it has been in the mow.
The bacteria multiply very slowly, only once every 24 hours, and take a month to form a colony.
Critics of multiple listing argue that multiply listed patients have an unfair advantage in gaining access to the scarce supply of donor organs and contribute to group-waiting time differentials (UNOS 1988).
When trying to maintain current weight, multiply Body Weight by 19.
You may tell students, "You can multiply two numbers in either order, and the answer will be the same.
A standard pneumatic cylinder combined with a belt mechanism is said to multiply speed of the cylinder while absorbing shock at the ascent end and improving take-out time.
Multiply said the month-long grace period will provide its users enough time to find and migrate to alternative e-commerce platforms, settle all payments on items bought and delivered, and minimize disruption to businesses of its users.
Then subtract the amount of new policies Cameron's got and multiply by the amount of talented MPs he's got to carry them through.
New medicines might work by "turning off" a section of these genes, decreasing the bacteria's ability to multiply.