Price-to-Earnings (P/E) Ratio Calculator

How it is calculated

The price-to-earnings ratio shows how many currency units investors pay for one unit of yearly profit: P/E = price ÷ EPS. price is the current price of one share and EPS is earnings per share over the period you choose, usually the last twelve months or a forecast, in the same currency. The tool also gives the earnings yield, the inverse of P/E: yield = EPS ÷ price × 100. Both inputs must be above zero, so a company with negative earnings gives no result, because a P/E for a loss-making company is not meaningful. The ratio is rounded to two decimals. A lower P/E is not automatically cheaper; growth, debt and sector all matter.

Common mistakes

• Mixing trailing and forward EPS when comparing two companies. One uses past profit and the other a forecast, so the P/E values are not comparable.
• Using total net income instead of earnings per share, or the market capitalisation with EPS. Price and EPS must both be per share.
• Entering a negative EPS. The tool returns nothing for it; use another measure for loss-making firms.
• Comparing P/E across different sectors. Software, banks and utilities normally trade at different ratios.
• Reading a very low P/E as a bargain without checking why earnings are high, for example a one-off gain.