MoneyWeek videos masthead

A beginner’s guide to p/e ratios

MoneyWeek deputy editor Tim Bennett explains one of the most widely used ratios you’ll see in the financial media – the price/earnings, or p/e ratio. What it measures, how you calculate it, and what it’s used for.

• See also: What is ‘earnings per share’?

• See all MoneyWeek videos here.

• To download the videos to your mobile device via iTunes, click here.

• Get all of our latest video tutorials sent straight to your inbox every week - sign up FREE to MoneyWeek Videos here.

P/e ratio

The price/earnings ratio is a quick way to establish a firm’s relative value. You get it by either dividing a firm’s market capitalisation by its profits after tax, or by dividing the price of one share by the firm’s earnings per share. The p/e tells you how many years it will take the firm to make profits equivalent to its market cap: if the p/e is ten, assuming profits stay the same, it will take ten years. A high p/e, or ‘multiple’, suggests a firm that is growing or is expected to grow fast. A high-growth firm with a low p/e could be considered cheap, and a low-growth firm with a high p/e could be considered expensive. The p/e is the main measure analysts use to determine a company’s position relative to the rest of the market.

• Entry from MoneyWeek’s Financial glossary.

ScreenHunter_01 Mar. 25 09.51

New to MoneyWeek?

Ed Bowshert

Welcome, and thank you for visiting us.

Here at MoneyWeek, our aim is simple: to give you intelligent and enjoyable commentary on the most important financial stories of the week, and tell you how to profit from them.

If you've enjoyed watching this MoneyWeek video tutorial, I've got something you'll definitely be interested in.

Every week I send out a free email, 'MoneyWeek Videos', giving you a video tutorial on a key piece of financial news or jargon.

And with your permission, I'd like to send you MoneyWeek Videos for FREE.

Sign up for your FREE MoneyWeek Videos email now

(No thanks)

I hope you enjoy your stay on the site. Good luck with your investments!

Ed Bowsher,
Digital managing editor, MoneyWeek

Video tutorial: How to invest in tech stocks

How to invest in technology

The technology sector can be hugely profitable for investors. But how do you pick the right companies? In his latest video, Ed Bowsher explains how to invest in tech stocks.

Video tutorial: How to get the best annuity

How to get the best annuity

In this video, Ed Bowsher explains what an annuity is, how to get the best possible annuity, and points to some other ways of getting the best income in your retirement.

Shale gas 'fracking' promises to transform Britain's energy market. Find out what it is, what it means, and how to invest.
MoneyWeek videos masthead

MoneyWeek Videos is our free weekly video email which breaks down the complicated world of finance and helps you understand what's really going on. Every week, MoneyWeek's Ed Bowsher takes a key piece of financial news or jargon and explains it. To join MoneyWeek Videos for free, just enter your email address.

To sign-up enter your email address.



A note about our free emails, advertising, and how to unsubscribe.

Because these emails are completely free, we do have to fund them with advertising. Occasionally we will send you separate promotional emails, which will contain advertisements from us or from other companies. By signing up to our free emails, you are consenting to receive these promotions. However we will never give, sell or rent your email address to any other companies. And if you want to stop receiving our free emails at any time, you can immediately unsubscribe by clicking on the link at the top of each email, or by calling us on 0207 633 3780. For more information, please see our Privacy policy.

Comment on this article