# What is the 'Price-Earnings Ratio - P/E Ratio'?

Modified on Thu, 19 Jul 2018 at 09:16 AM

The price-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings. The price-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

The P/E ratio can be calculated as: Market Value per Share / Earnings per Share

BREAKING DOWN 'Price-Earnings Ratio - P/E Ratio'

In essence, the price-earnings ratio indicates the dollar amount an investor can expect to invest in a company in order to receive one dollar of that company’s earnings. This is why the P/E is sometimes referred to as the price multiple because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay \$20 for \$1 of current earnings.

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Source: Investopedia