| Price-Earning Ratio is calculated as (current share | | | | following two quarters. The future P/E ratio is |
| price) / (earnings per share), and and we usually | | | | entirely based on projected earnings for the next |
| write P/E. This ratio reflects how much the | | | | year. The price is current share price on the |
| market is willing to pay for each dollar from | | | | stock market. |
| earnings. For example, if the P/E ratio is 15 then | | | | High Price to earnings ratio of a company means |
| investors are willing to pay 15$ for each dollar of | | | | that the market expects that the EPS of that |
| earnings. Depending on what earnings are used in | | | | stock will be increased. If the company does not |
| the calculation we have past (or trailing), current | | | | meet that expectation, the price will go down. |
| and future P/E ratio. | | | | Low P/E ratio means that the market expect |
| The past P/E ratio uses actual earnings for | | | | that the EPS is going down. If the company does |
| previous four quarters. The current P/E ratio is | | | | not meat that expectation, price will go up. Such |
| calculated by actual earnings for the previous two | | | | stocks are good opportunities for buying. |
| quarters and the projected earnings for the the | | | | |