What is the definition of Price to Earnings (P/E)?

Price to Earnings (P/E) is a financial metric which shows the ratio of a firm's current share price to its earnings per share. This is an extremely common multiple used to evaluate whether a company is under or overpriced. Usually, the higher the P/E ratio, the more overvalued the firm is.

The calculation of P/E is:

• Market Value Per Share / Earnings Per Share