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What is the PE ratio?

The PE ratio stands for the Price-Earnings ratio.

The price-earnings ratio is a straightforward formula:

Share Price divided by earnings per share.

Earnings per share is calculated by dividing the pre-tax profit for the company by the number of shares in issue.

 

The PE ratio is seen by some as a measure of future growth of a company. As a general rule, the higher the PE, the faster the market believes a company will grow.