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Price to Earnings

Posted by on February 14, 2016 6:23 PM
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Price to earnings, also called P/E, is a ratio used in valuation research of a company that measures its current share price relative to its earnings per share.

The price-earnings ratio can be calculated as: Market Value per Share / Earnings per Share

There are three popular P/E calculations, trailing P/E and forward P/E, and the Shiller P/E.

Trailing P/E uses net income for the past 12-month period, divided by the number of common shares in issue during the period. This is the most common calculation used for P/E.

Forward P/E, instead of net income, uses estimated net earnings over the next 12 months in the future.

The Shiller P/E ratio earnings ratio is based on average inflation-adjusted earnings from the previous 10 years, known as the Cyclically Adjusted PE Ratio (CAPE Ratio), Shiller PE Ratio, or PE 10.

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