Price-Earnings Ratio - P/E Ratio
What Does Price-Earnings Ratio - P/E Ratio Mean?
A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as:
For example, if a company is currently trading at Rs.100 a share and earnings over the last 12 months were Rs.50 per share, the P/E ratio for the stock would be 2 (Rs.100/Rs.50).
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
Also sometimes known as "price multiple" or "earnings multiple".
A valuation ratio of a company's current share price compared to its per-share earnings.
Calculated as:
For example, if a company is currently trading at Rs.100 a share and earnings over the last 12 months were Rs.50 per share, the P/E ratio for the stock would be 2 (Rs.100/Rs.50).
EPS is usually from the last four quarters (trailing P/E), but sometimes it can be taken from the estimates of earnings expected in the next four quarters (projected or forward P/E). A third variation uses the sum of the last two actual quarters and the estimates of the next two quarters.
Also sometimes known as "price multiple" or "earnings multiple".
Explanation:-Price-Earnings Ratio - P/E Ratio
In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects.
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