How to use the P/E ratio calculator
The P/E ratio tool measures the multiple:
- Choose the earnings. Pick trailing, forward or both. With both, the calculator also shows the EPS growth the two figures imply.
- Enter the share price. The latest close is fine.
- Enter EPS. Trailing EPS is the diluted earnings per share of the last four quarters added together. Forward EPS is the consensus analyst estimate for the coming year.
- Add a benchmark P/E such as the industry average or the stock’s five-year average.
The Price from P/E tool works the other way: EPS and a fair multiple give the implied share price, with a table of prices at P/E ratios from 10 to 40.
The formulas
Forward P/E = Share price ÷ Expected EPS for the next 12 months
Earnings yield = EPS ÷ Share price = 1 ÷ P/E
Expected EPS growth = Trailing P/E ÷ Forward P/E − 1EPS is earnings per share, normally the diluted figure. The growth formula works because the price cancels out: it equals forward EPS ÷ trailing EPS − 1. P/E is shown only when EPS is positive.
A worked example
Company A’s shares trade at $72. Over the last 12 months it earned $4 a share, and analysts expect $4.50 next year.
The trailing P/E is 18.00 and the forward P/E is 16.00. The gap between them is the growth the analysts expect: 12.5%. The trailing earnings yield is 5.56%.
Against a benchmark P/E of 20, the stock trades at a 10.0% discount. At the benchmark multiple, the price would be $80.00.
In the Price from P/E tool, forward EPS of $4.50 at a target P/E of 18 implies a price of $81.00, 12.5% above the current $72. Each point of P/E is worth $4.50 a share, so the choice of multiple swings the answer: at a P/E of 12 the price would be $54.00, at 25 it would be $112.50.
How to read a P/E ratio
A P/E is a price tag on expectations: a high multiple says the market expects growth or unusual stability, a low one expects stagnation or risk. Typical levels vary widely by industry, so these ranges are only a rough guide:
| P/E range | What it often reflects |
|---|---|
| Below 10 | Cyclical businesses near a profit peak, companies in decline, or real bargains |
| 10 to 20 | Mature, slower-growing companies: many banks, utilities and industrials |
| 20 to 30 | Steady growers with strong brands or high returns on capital |
| Above 30 | Fast growth expected, or earnings temporarily depressed |
Compare a stock with its own history and its direct competitors, and check the growth behind the multiple: the PEG ratio calculator divides the P/E by expected growth.
The market’s own P/E also moves with interest rates: when bonds pay more, investors demand higher earnings yields and multiples tend to fall.
Trailing versus forward: when they disagree
When analysts expect growth, the forward P/E is lower than the trailing one, as in the example. When they expect a decline, it is the other way round. If trailing EPS is $5 and forward EPS is $4, the trailing P/E of 14.40 looks cheaper than the forward P/E of 18.00, and the gap shows an expected fall in earnings of 20.0%.
The pattern is common in cyclical industries: at the top of the cycle, record earnings produce a low trailing P/E just before profits drop. There, a low multiple can be a warning rather than a bargain.
Negative earnings
When a company loses money, the calculator shows n/m. A negative P/E ranks nothing: −10 is not cheaper than 15.
If Company A had lost -$2 a share but analysts expected $1.50 next year, the trailing P/E would be n/m and the forward P/E 48.00. The earnings yield still works and is negative: -2.78%. For companies that are not yet profitable, the price-to-sales calculator is the usual starting point.
What this calculator does not include
- Earnings quality. One-off gains, write-downs or tax effects distort EPS. Adjusted EPS removes them, but the company chooses the adjustments.
- Debt. P/E ignores it; EV/EBITDA accounts for it.
- Share count changes. Buybacks lift EPS without any growth in profit.
- The quality of estimates. Forward EPS is a forecast, and forecasts for the year ahead are often revised.