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

The P/E Ratio calculator calculates the price-to-earnings ratio and presents the result rounded off to 2 digits. Not only does this post calculate the price-to-earnings ratio accurately, but it also explains each component of the formula of PE Ratio. It also teaches how to interpret the results.

## About Price to Earnings Ratio

Price to earnings ratio represents the value of a company in terms of the number of times of its current earnings. If the P/E ratio is 10, it means the market is willing to pay 10 times of its current earnings to invest in the company.

## Formula

The formula that represents the P/E Ratio is as follows:

P/E Ratio = Market Price per Share / Earnings per Share

The market price is the current market price per share of a company in the stock market. This also suggests that this ratio is broadly used for listed entities. It is because finding a current market price of an unlisted company is difficult.

EPS is arrived at when the total net earnings of a company are divided by equity shares outstanding of the company.

## P/E Ratio Interpretation

One important part of interpreting any financial ratio is to compare it with the company’s own past or with the industry it exists in.

### High P/E Ratio

Companies already having a higher level of P/E ratio indicates two things.

- The market is seeing a very good future prospect for the company.
- From another angle, if the P/E is higher than its peers, it may be overpriced. New investors may be reluctant about entering into it.

### Low P/E Ratio

If the company’s P/E ratio is low, the market may be discounting some bad news about the company. News that affects the future growth prospects of the company. If the company faces a temporary reduction in trading price owing to market fluctuation, it can be an investment opportunity. If the fundamentals of the company are good, accompanied by a low P/E ratio, it is an opportunity. It is based on the fact that the P/E Ratio of a company tends to move towards the industry average P/E Ratio.