P/E ratio: drag the earnings
Drag the bar to set earnings per share. The price is held still, so the headline P/E moves only because the denominator does. Raise EPS and the multiple falls. That is a more profitable year on this picture, not a cheaper share.
P/E
20.0x
Earnings per share
$2.50
Raise EPS and the multiple falls. Market cap stays $5,000,000,000.00 until the price moves. Total earnings $250,000,000.00. Illustrative arithmetic, not a valuation or advice.
Share price
$50.00, held still so only the denominator moves.
In short
- Drag the bar up for a higher multiple, which is a lower EPS.
- Drag it down for a higher EPS and a lower P/E.
- Watch market cap sit still: the price has not moved.
- Focus the handle and use the arrow keys to step EPS.
Price over EPS, with the price nailed down
P/E is price per share divided by earnings per share. Hold the price and change EPS and you are watching the denominator, not a bargain. How the P/E ratio works is both routes: price over EPS, and market cap over total earnings. How earnings per share works is this denominator. The price to earnings calculator sits under those answers.
Two versions, one box
Trailing P/E uses reported earnings. Forward P/E uses estimates. Mixing them in a table is how one firm looks like two. Trailing against forward P/E is that switch. Type the EPS your sheet is using.
When earnings are zero or negative the ratio stops. This picture keeps EPS positive on purpose rather than printing a nonsense multiple.
A multiple hides scale
The same P/E can sit on a large firm or a small one until you put the share count back in. Market capitalisation is that product. Enterprise value over EBITDA is a different ratio on a different claim: debt sits in the numerator and the denominator is before interest.
Common questions
Why does a lower P/E not mean the share is cheap?
Because the denominator can move without the price moving. On this picture, raising EPS cuts the multiple while market cap sits still.
Is this trailing or forward?
Whichever EPS you treat the slider as. The formula does not know. Trailing uses reported earnings. Forward uses estimates.
Is this a buy or sell?
No. It is price over EPS on a teaching sheet. It is educational material, not advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.