What is the p/e ratio?

Question

What is the p/e ratio and how do I find it for a company?

Answer 1

The price to earnings ratio is a measure of the company's current share price compared to the annual net earnings per share. The other way to think about this is the number of years a company would take to pay back the share price if the earnings stay constant. This ignores factors like inflation and can be used as an indicator of risk. During the internet bubble many companies had P/E above 24 and no possible means of earning back the share prices that were inflated largely due to speculation.

Most tools like Google Finance will list the P/E for a particular quote.

Answer 2

The PE ratio stands for the Price-Earnings ratio.

The price-earnings ratio is a straightforward formula:

Share Price divided by earnings per share.

Earnings per share is calculated by dividing the pre-tax profit for the company by the number of shares in issue.

The PE ratio is seen by some as a measure of future growth of a company. As a general rule, the higher the PE, the faster the market believes a company will grow.

This question is answered on our DividendMax website: http://www.dividendmax.co.uk/help/investor-glossary/what-is-the-pe-ratio

Cheers

Answer 3

PE ratio is the current share price divided by the prior 4 quarters earnings per share. Any stock quote site will report it. You can also compute it yourself. All you need is an income statement and a current stock quote.