This measure reflects how much you pay for each dollar that company earns. A company often reports profits on a per-share basis. So a company might say that it has earned $5 per share. If that same stock is selling for $75 a share on the market, you divide $75 by $5 to come up with a P/E ratio of 15. The higher a P/E ratio is, the more there is expectations for higher earnings.
Source: https://investorjunkie.com/37463/common-investing-terms-definitions/« Back to Glossary Index