| The P/E equals the current share price of a company divided by its earnings per share in the latest reported period. For example, a company with a share price of 100 and earnings per share (EPS) of 5 has a P/E ratio of 100/5 = 20. A companys P/E (also known as its multiple) shows how high its shares are priced in relation to its historic earnings, and it is one of the most commonly used tests of market value. Although mathematically it relates share price to past performance, the reality is that P/Es are more about forward expectations than the past. A high P/E indicates that markets expect the companys earnings to grow rapidly in the future.
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