Price-to-Earnings (P/E) Ratio
Price per share divided by earnings per share.
What is Price-to-Earnings (P/E) Ratio?
How many dollars investors pay per dollar of annual earnings. A high P/E implies expectations of growth - or overvaluation. Meaningless for unprofitable companies and misleading across different industries.
Price-to-Earnings (P/E) Ratio: a worked example
$40 share price with $2.00 EPS is a P/E of 20 - roughly 20 years of current earnings.
More terms in Valuation & Analysis
Market Capitalization
Share price times shares outstanding - the equity value of a company.
Earnings Per Share (EPS)
Net income attributable to each share of common stock.
Dividend Yield
Annual dividends per share divided by share price.
Payout Ratio
The share of earnings paid out as dividends.
Book Value
Assets minus liabilities - the accounting value of equity.
Free Cash Flow
Operating cash flow minus capital expenditures.
EBITDA
Earnings before interest, taxes, depreciation, and amortization.
Return on Equity (ROE)
Net income divided by shareholders' equity.