Lesson 20

Valuing shares: the P/E ratio

Price and earnings

The price-to-earnings ratio (P/E) divides the share price by earnings per share. If a share costs €100 and the company earns €5 per share, the P/E is 20.

Putting figures in context

A P/E alone says little. It is compared with the sector and with the past. High values often reflect high expectations for future growth, low values often lower ones.