What is Price to Earnings Ratio (PE Ratio)? Definition or Meaning

The Price to Earnings Ratio or PE Ratio is the relationship between a company’s price per share and its per share earnings. This figure can be useful for investors as it tells them the dollar amount they need to spend on a company in order to get one dollar of that company’s earnings. The PE ratio formula is price per share divided by earnings per share over the last twelve months.

For example…

Take for instance toy manufacturer StrongToys’ share price of twenty-three dollars per share. If its earnings per share over the last twelve months was one dollar and fifty cents per share, then its PE ratio, would be fifteen points three.