P/E Ratio Calculator
Compute price-to-earnings ratio, earnings yield, and market capitalisation from share price and EPS. Uses the universal Brealey/Myers identity used in every equity-analysis textbook.
P/E ratio
25
- Earnings yield
- 4%
- Share price
- £150.00
- Earnings per share (EPS)
- £6.00
P/E = Price per Share / EPS. The result is the number of years of current earnings an investor pays for one share, on the simplifying assumption that earnings stay flat. Earnings yield is the inverse — earnings per dollar invested, comparable to a bond yield. Typical bands: high-growth tech 25–50, broad S&P 500 long-run average ~16, mature utilities and banks 8–14, cyclicals near a peak often below 10.
How to use this calculator
Enter the current share price and earnings per share (EPS) — the standard trailing P/E uses the latest reported diluted EPS over the past four quarters (the "TTM" figure on most data providers). Optionally enter shares outstanding to see market capitalisation and implied net income. The result updates as you type. For forward P/E, substitute a consensus forecast EPS instead of the trailing number; the formula is identical.
How the calculation works
P/E = Price per Share / EPS. The ratio expresses how many years of current earnings an investor is paying for one share, assuming earnings stay flat. Earnings yield is the inverse — EPS / Price — and is directly comparable to a bond yield: a P/E of 20 is a 5% earnings yield, a P/E of 10 is a 10% earnings yield. Market capitalisation, when shares outstanding are entered, is simply Price × Shares; multiplied through, the company-level P/E equals Market Cap / Net Income — the same ratio at the firm level.
Worked example
A share trades at $150 with trailing diluted EPS of $6.00. P/E = 150 / 6 = 25.0. Earnings yield = 6 / 150 = 4.0%. With 16 billion shares outstanding, market cap = 150 × 16,000,000,000 = $2.4 trillion and implied net income = 6 × 16,000,000,000 = $96 billion. The same P/E pops out of $2.4T / $96B = 25.0.
Frequently asked questions
What is a "good" P/E ratio?
It is entirely sector-dependent. Long-run averages: broad S&P 500 ~16, FTSE 100 ~13, large-cap tech 25–40, high-growth software 40+ (or unmeasurable on losses), mature utilities and integrated banks 8–14, cyclicals near a profit peak often below 10 and near a trough above 30. Compare a company against sector peers, not a universal benchmark, and pair the absolute P/E with the growth outlook — a 30× P/E on 25% earnings growth is cheaper than a 15× P/E on flat earnings.
What is the difference between trailing and forward P/E?
Trailing P/E uses the last four reported quarters of EPS — backward-looking, audited, but stale if earnings are turning. Forward P/E uses the next four quarters of consensus analyst EPS forecasts — timely but only as good as the forecast. In a recovering economy forward P/E is usually lower than trailing (earnings recovering); in a deteriorating one forward P/E is higher. Most professional valuation work uses the forward figure, but you should always cross-check with trailing to gauge how much of the multiple depends on the forecast holding up.
Why does the calculator return zero when EPS is negative?
A negative or zero EPS makes P/E mathematically undefined and economically meaningless — you cannot express loss-making years as "years of earnings paid". When a company posts a loss, valuation shifts to price-to-sales, EV/EBITDA, EV/revenue, or forward P/E against a forecast of when earnings turn positive. The standard convention on data terminals is to display "n/a" or "NM" (not meaningful) for these cases; this calculator returns zero with a note in the explanation rather than displaying a misleading positive number.
What is earnings yield, and why does it matter?
Earnings yield is the inverse of P/E — EPS divided by price, expressed as a percentage. It is directly comparable to a bond yield, which makes it the cleanest way to compare equities against fixed income. A P/E of 20 is a 5% earnings yield; a P/E of 12.5 is an 8% earnings yield. The "Fed model" of equity valuation compares the S&P 500 earnings yield to the 10-year Treasury yield as a rough fair-value gauge — when the earnings yield is well above bond yields, equities look cheap on a relative basis; when below, expensive.
How does P/E relate to PEG and CAPE?
PEG (price/earnings-to-growth) = P/E divided by the expected earnings growth rate in percent — a normalisation that lets you compare high-growth and low-growth companies on a single number. A PEG below 1.0 is the traditional Peter Lynch "cheap" threshold. CAPE (cyclically-adjusted P/E, also called the Shiller P/E) divides current price by the average inflation-adjusted EPS over the last ten years — it smooths out the business cycle and is the standard long-horizon valuation gauge for whole indices. Current P/E is the spot reading; PEG and CAPE put it in context.
Should I use basic or diluted EPS?
Use diluted EPS — it includes the dilutive effect of stock options, restricted stock units, convertible bonds, and warrants, which is the true share count an existing shareholder will be diluted to once those securities convert. Basic EPS uses only currently outstanding common shares and overstates per-share earnings for any company with material stock-based compensation. US GAAP and IFRS both require diluted EPS on the income statement; nearly all reported P/E ratios on financial data terminals are calculated on diluted EPS by default.