Price Earnings Ratio (P/E ratio)
Price per share divided by the earnings after tax per share.
A Price Earnings Ratio is an extremely popular measure used by investors when appraising quoted company performance and is simply the price per share divided by the earnings after tax per share. It shows how much investors are prepared to pay for each ? of earnings they are entitled to and, with just a cursory glance at the financial press, will quickly show how volatile this number is both between different sectors and within each sector.
One way of interpreting P/E ratios is by considering them as a payback period. In the example above, an investor would need to wait 5.6 years before his investment would be recouped if earnings were maintained at current levels and fully distributed.