A price to earnings (P/E) ratio is a way to measure the value a company’s shares are, effectively the amount of money you are paying for each dollar of its earnings.

You can calculate the P/E ratio by dividing the share price of a company by its annual earnings per share (EPS).

As an example, if a company is currently trading at $14 per share and its earnings per share was $1.12 over the last 12 months, then the P/E ratio for the share would be 14/1.12 = 12.5.

The ratio indicates you are paying 12.5 times the company’s earnings (or $12.50 per each dollar of earnings).

The P/E ratio of a company is often considered in respect to its peers i.e. compare tech company to another tech company or the tech industry (as an index), as…