Price to earnings ratio

(PER). The ratio of the equity value of a company to its accounting earnings (profit after tax). The PER can be calculated either on a per-share basis or on the total equity value and total earnings, giving identical results.

Per share: PER = Current share price ÷ Earnings per share. On total values: PER = Total equity value ÷ Total earnings.

For example if Company A's total equity value is $630m and its relevant earnings are $63m, the PER = $630m/$63m = 10. In another case if comparable PERs for an unlisted Company B are 12, and its relevant earnings are $10m, the total value of Company B's equity can be estimated on this basis as 12 x $10m = $120m.

Sometimes written as P/E ratio or PE ratio.

Also known as price earnings ratio.

See also

• Bootstrap effect
• Earnings multiples
• Earnings per share
• Earnings yield
• Historic
• Multiples valuation
• Prospective
• Ratio analysis