How to Calculate a PE Ratio
Stock market investors and traders use many ratios to help pick stocks. Among these are PE ratio, PEG ratio, debt to income ratio, debt to equity ratio, quick ratio, sharp ratio, and many others. The PE ratio is one of the main ratios used by stock market investors and traders because it is simple, straightforward, and simple to calculate.
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Instructions
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Gather the following information for a given stock from a financial website, such as Yahoo! Finance:
* Current price
* Annual earnings per share (usually the estimated earnings for the current year (this will be according to stock market analysts who follow the stock). -
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Divide the price by the annual earnings per share. The result is the PE ratio for the stock.
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Interpret the PE ratio. PE ratios are also known as "multiples". It is said that a stock has a certain "multiple". Compare the PE multiple for your stock with the PE multiple of that company's competitors. Different industries have different PE ratio ranges. For example, slow-growing manufacturing industries may have PE ratios in the 10-15 range. Then, high-growing tech stocks may have PE ratios of 25-40. Whenever the market assigns a high ratio to a stock, it means that investors as a whole expect significant future growth. A stock with a low PE indicates that investors do not expect high earnings growth in the near future.
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