Home
Back
Price to Earnings Ratio Formula:
| From: | To: |
The Price to Earnings (P/E) ratio is a financial metric used to evaluate a company's current share price relative to its per-share earnings. It indicates how much investors are willing to pay per dollar of earnings and is widely used for stock valuation.
The calculator uses the P/E ratio formula:
Where:
Explanation: The ratio shows how many years it would take for the company to earn back its current market price through its earnings.
Details: P/E ratio helps investors compare companies within the same industry, assess whether a stock is overvalued or undervalued, and make informed investment decisions based on earnings potential.
Tips: Enter the current market price per share and the earnings per share (EPS) in dollars. Both values must be positive numbers greater than zero for accurate calculation.
Q1: What is considered a good P/E ratio?
A: A "good" P/E ratio depends on the industry and growth prospects. Generally, lower P/E may indicate undervaluation, while higher P/E may suggest growth expectations.
Q2: What's the difference between trailing P/E and forward P/E?
A: Trailing P/E uses past 12-month earnings, while forward P/E uses projected future earnings. Both provide different perspectives on valuation.
Q3: Can P/E ratio be negative?
A: Yes, if a company has negative earnings (losses), the P/E ratio becomes negative, which makes it difficult to interpret for valuation purposes.
Q4: Why compare P/E ratios within the same industry?
A: Different industries have different average P/E ratios due to varying growth rates, risk profiles, and business models, making cross-industry comparisons less meaningful.
Q5: What are limitations of P/E ratio?
A: P/E doesn't account for debt, growth rates, or one-time events. It should be used with other financial metrics for comprehensive analysis.