What Is Price-to-Earnings Ratio (PE) and How to calculate?

The Price-to-Earnings Ratio (P / E Ratio) is the ratio for a company's valuation that measures its current share price for its earnings per share (EPS).

The price-to-earnings ratio is sometimes referred to as the price multiple or income multiple.

The P / E ratio is used by investors and analysts to determine the relative value of a company's shares.

 

It can also be used to compare gross markets against a company's own historical record or against each other or over time.

P / E ratio formula and calculation

When someone reviews a company's  P / E ratio. They then determine that the share price represents the estimated earnings per share.

The formulas and calculations used for this process follow.

                                     Current Market Price per share

 P/E Ratio =     

                                               Earnings per share

For Example:

1 XYZ Company.

Current Market Price per share:  1000

Earnings per Share: 150

                                            1000

 P/E Ratio =             

                                           150

P/E Ratio =     6.66

 To determine the P / E price, the current stock price should be divided by earnings per share (EPS).

The current stock price (P) can be brightened by plugging the ticker symbol of the stock into any finance website, and although this solid value indicates what investors should currently pay for the stock, the EPS is slightly more ambiguous.