Hi folks, so Price/Earnings Ratio Calculator seems interesting to you? Our Price/Earnings Ratio Calculator aids investors in determining if a company’s investment stock is cheap or overpriced. The price/earnings (P/E) ratio compares the stock price to the earnings per share of a corporation. Because there is nothing to put in the denominator for companies that have no profits or are losing money, a P/E ratio is not calculated.

Instead, we’ll explain what the price/earnings ratio is and how to calculate it, as well as provide a basic Price/Earnings – P/E ratio formula if you’re seeking a solid or growth investment opportunity. If you want to be able to determine earning’s true worth in a matter of seconds, be sure to visit our Earnings per Share Calculator. Also see these finance related Quick Ratio Calculator and Financial Leverage Ratio.

What is the Price/Earnings (P/E) Ratio?  

The price/earnings ratio (P/E ratio) is a valuation ratio that compares a company’s current shares price to earnings per share (EPS). The price-to-earnings ratio, also known as the price multiple or the earnings multiple, is a ratio that compares the price of a stock to its earnings. It informs investors of a company’s value. If several businesses from the same industry are analyzed during the same period, usage of the price/earnings ratio may be to measure the market as a whole. An investor can use this type of comparison to assess if a company is overvalued or undervalued.

When deciding whether or not to invest, investors look at a company’s price/earnings ratio. They calculate the ratio by comparing market value per share to earnings per share. The most frequent financial price earnings ratio is the trailing P/E, which determination is over prior quarters. A future P/E is a price/earnings ratio derived using expected net profits for future quarters.

The P/E ratio indicates how much growth investors anticipate from the company they invest in. A high ratio shows that investors are spending significantly more per share than the companies earn, which is frequent in new enterprises that require a lot of cash, such as tech start-ups. Lower P/E ratios show that growth has slowed, but this does not always imply that the companies are failing; in fact, a lower P/E ratio might suggest that the company has cemented its market shares and investment.

How Are Earnings and Income Different

We can use earnings and income interchangeably and they are synonymous—and they are in many cases. However, there are other forms or categories of financial wages and income, each with its own set of definitions.

Because it is the profit left over after all costs have been eliminated, net income and earnings are sometimes referred to as a company’s bottom line. As a result, it lies at the bottom of the income statement. On the other hand, revenue appears at the top of the income statement and is not to be mistaken with earnings or net income. Before expenditures are off, revenue is the whole amount of income we receive in a certain period. As a result, revenue is the top line.

P/E Ratio Formula 

Simply divide the current stock price by the earnings per share to obtain the P/E figure (EPS). Although the current stock price (P) determination may be by entering a firm’s ticker symbol onto any finance website, the EPS is a bit more ethereal metric. So here is our simple formula for calculating it:

 P/E Ratio \; =\frac {Share \;price} { Earnings \;per \;share \,}  

Understanding the P/E Ratio 

The (P/E) ratio is one of the most extensively that we use measures for determining a financial stock’s relative valuation for company by investors and analysts. We may use a P/E ratio as a tool that assesses if a company is overpriced or undervalued. We can compare the P/E ratio to other companies in the same industry or the broader market, such as the S&P 500 Index.

Analysts interested in long-term valuation patterns may use the P/E 10 or P/E 30 metrics, which average earnings over the previous 10 or 30 years, respectively. Because these longer-term measurements may correct for fluctuations in the business cycle, they are frequently employed when attempting to judge the overall worth of a stock index, such as the S&P 500.

Price/Earnings Ratio Calculator – How to use it? 

Before investing, most investors want to know how much an equity share is a financial worth. They look at company price value, risk, ROI, cash flows, and corporate governance, worth of a company among other things. Among various valuation methodologies, the P/E ratio is one of the most important instruments for determining a stock’s intrinsic value. We have a tool which can also help you with the above mentioned value and analysis, EBITDA Multiple Calculator.

The P/E ratio is also known as the ‘earnings multiple‘ or ‘price multiple.’ The P/E ratio is derived by dividing a stock’s market price by earnings per share. For example, a shares of Company ABC is now trading price for $90, with earnings per share of $10. So, 90 / 9 = 10 is the P/E ratio. The P/E ratio of ABC Ltd. is at ten. This is indicating that investors are willing to pay Rs 10 for every rupee of business net profits.

What Does Price/Earnings Ratio Tell About a Stock?

Because the Price/Earnings ratio varies by industry, we should compare it to peers with similar business activities (of comparable size). Also, its historical P/E to determine if a company is cheap or overpriced. For example, specific industries, such as diamonds, fertilizers, and so on, have historically had low P/E ratios.

Other industries with greater P/E ratios include FMCG, pharmaceuticals, and information technology. The following is an examination of high and low P/E:

  • The P/E ratio is high.
  • P/E Ratio Low
  • P/E Ratio Justified
  • The P/E ratio is negative. 

Price/Earnings Ratio Calculator – Example 

Calculate the Price/Earnings ratio for the company Target Corporation as of Feb. 3, 2021, when the company’s stock price closed at $139.55 as a historical example. For the fiscal year ended January 31, 2021, the firm earned $4.75 per share.

So when we calculate it, the company Target Corporation price ratio is $139.55 / $4.75 = 29.38.

Analyze results 

The price to earnings ratio shows how much a stock is estimated to be worth depending on its financial net profits. The market value per share of a corporation rises in tandem with its earnings per share. A high Price/Earnings ratio indicates that a company’s future performance will be favorable. Investors will be prepared to pay more for its stock. On the other hand, a smaller ratio is typically indicative of poor present and future performance of the company. This may turn out to be a bad investment.

In general, a greater ratio indicates that investors expect stronger future performance and growth. It also implies that corporations that are losing money have low P/E ratios. It’s vital to realize that this ratio is only effective when comparing organizations in the same industry/company. Management may readily alter this ratio using specialized accounting strategies because it is dependent on the net profits per share computation.

FAQ 

What Is a Good Price-to-Earnings Ratio? 

A good or best P/E ratio isn’t always a high or low ratio in and of itself. A higher P/E ratio above that may be regarded as bad, while a lower Price to Earnings ratio could be considered better. For example, the market average P/E ratio now runs from 20 to 25. Thus a higher PE ratio above that could be considered bad, while a lower Price to Earnings ratio for the companies could be considered better.

What Does a P/E Ratio of 20 Mean? 

If a firm is now selling at a 20x P/E multiple, an investor is ready to pay $20 for $1 in current earnings. The P/E ratio aids investors in determining a stock’s market value concerning its earnings.

Apple Price Earnings Ratio?  

Apple Inc. has a trailing 12-month P/E of 28.94X, compared to a P/E of 19.32X for the Computer – Mini computers industry. For example, a stock with a P/E ratio of 20 is selling at 20 times its trailing twelve months’ earnings.

Price Earnings Ratio Nike?  

The most recent twelve-month p/e ratio for Nike is 37.4x. For fiscal years ending in May 2017 through 2021, NIKE’s p/e ratio averaged 42.6x. From fiscal years ending in May 2017 through fiscal years ending in May 2021, Nike had a typical P/E ratio of 35.5x. NIKE’s Price/Earnings ratio peaked at 64.1x in May 2018 when looking back five years.