Financial Terms / price earnings ratio

# Understanding Forward P/E Ratios

The Price-earnings (P/E) ratio is a measure used to evaluate a company's value and performance.

## Formula

``PE Ratio = Share Price/EPS``

## How do I calculate the price earnings ratio?

`It is important to understand how to calculate the Price-earnings (P/E) ratio in order to properly value a company. The Price-earnings (P/E) ratio is calculated by `dividing the current share price of a company by its earnings per share (EPS)`. For example, if a company’s current share price is \$50 and its EPS is \$5, then the Price-earnings (P/E) ratio is 10 (50/5=10). You can calculate the Price-earnings (P/E) ratio using spreadsheet programs such as Sourcetable.`

## What is the Price-earnings (P/E) ratio?

`The Price-earnings (P/E) ratio is a financial metric used to evaluate a company's current share price relative to its per-share earnings. It is calculated by dividing the current stock price by the earnings per share (EPS). The P/E ratio is also known as the price multiple or the earnings multiple.`

## What does a high Price-earnings (P/E) ratio mean?

`A high Price-earnings (P/E) ratio typically means that investors are expecting higher growth in the future. It can also indicate that the stock is overvalued compared to its peers.`

## What does a low Price-earnings (P/E) ratio mean?

`A low Price-earnings (P/E) ratio typically means that the stock is undervalued compared to its peers. It can also indicate that investors are expecting lower growth in the future.`

## Key Points

How do I calculate price earnings ratio?
`PE Ratio = Share Price/EPS`
Calculating the P/E Ratio
The P/E ratio is calculated by dividing the current stock price by its earnings. This provides investors with an easy way to compare the value of different stocks.
Analyzing the P/E Ratio
The P/E ratio can be used to analyze the potential growth of a company. A high P/E ratio indicates that a company is expected to grow quickly, while a low P/E ratio indicates that a company is expected to grow slowly.
Comparing P/E Ratios
P/E ratios can be compared to see how one companyâ€™s stock price compares to that of another company. A higher P/E ratio indicates that a companyâ€™s stock is more expensive than that of another company. 