priceearnings ratio
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Recent Examples of priceearnings ratio from the Web

Only about 40 companies in the S&P 500 have a priceearnings ratio of less than 12, which is a sign of imminent decline.

The estimate for the priceearnings ratio of the S&P 500 index for the week ended July 7 was 18.56.

Jack in the Box , which runs Chipotle competitor Qdoba, has a priceearnings ratio of 19.
These example sentences are selected automatically from various online news sources to reflect current usage of the word 'priceearnings ratio.' Views expressed in the examples do not represent the opinion of MerriamWebster or its editors. Send us feedback.
First Known Use of priceearnings ratio
1929
Financial Definition of PRICEEARNINGS RATIO
What It Is
The pricetoearnings ratio (P/E) is a valuation method used to compare a company’s current share price to its pershare earnings.
How It Works
The market value per share is the current trading price for one share in a company, a relatively straightforward definition. However, earnings per share (EPS) may not be as intuitive for most investors. The more traditional and widely used version of the EPS calculation comes from the previous four quarters of the pricetoearnings ratio, called a trailing P/E. Another variation of the EPS can be calculated using a forward P/E, estimating the earnings for the upcoming four quarters. Both sides have their advantages, with the trailing P/E approach using actual data and the forward P/E predicting possible outcomes for the stock. Calculated as the following;
PricetoEarnings Ratio (P/E) = Market value per share / Earnings Per Share (EPS)
Moving on from the basics, let us do a sample calculation with company XYZ that currently trades at $100.00 and has an earnings per share (EPS) of $5.00. Using the previously mentioned formula, you can calculate that XYZ’s pricetoearnings ratio is 100 / 5 = 20.
[See extra examples and learn more about how to use the P/E ratio in The Most Famous Number in Investing]
Why It Matters
The pricetoearnings ratio is a powerful, but limited tool. For investors, it allows a very quick snapshot of the company’s finances without getting bogged down in the details of an accounting report.
Let us use our previous example of XYZ, and compare it to another company, ABC. Company XYZ has a P/E of 20, while company ABC has a P/E of 10. Company XYZ has the highest P/E ratio of the two and this would lead most investors to expect higher earnings in the future than from company ABC (which possesses a lower P/E ratio).
As noted earlier, the P/E ratio is limited. It does not paint the entire picture for the potential investor; rather it is a complementary tool in your financial toolbox. Be wary of forward EPS measures, (remember, EPS is an essential aspect of calculation of the P/E ratio) as they are matters of prediction and are only estimates of projected earnings. Further, trailing P/E ratios can only tell you what happened to a company in the previous time periods.
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