PA financial ratio calculated as current share price divided by current earnings per share (EPS= earnings for the last 12 months divided by the number of common shares outstanding). Also known as the multiple as in the multiple of earnings at which a stock is priced. Companies that investors expect to see grow strongly tend to have high P/E ratios while mature companies may often relatively low P/Es. For example, a share selling at £16 per share with projected earnings next year of £4 has a P/E ratio of 4 while that same stock with projected earnings next year of £6 has a P/E ratio of 2.67. The reverse ratio of P/E calculates earnings yield and is calculated as 1 divided by the P/E ratio. For example, if you had a P/E Ratio of 20, the earnings yield ratio would be 1/20, which equals 0.05. Therefore, an investor would typically expect to receive a 5% yield on an investment with a company with a P/E of 20.
