How to Calculate PE Ratio - Part 2

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Click Here for Part 1: youtu.be/e9rtUt84p-8
Click Here for Part 3: youtu.be/pOLDDKTEHG4

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The Price to Earnings Ratio, or PE Ratio for short, is a term that you come across fairly often when reading about a stock. It is a relative valuation metric that investors use to gauge whether a stock is over-valued or undervalued. We will talk about this in a little more detail later in the video so be sure to stick around to the end.
The PE ratio is calculated by taking dividing a company’s stock price by the company’s earnings per share or its EPS. The EPS can be found on the company’s income statement from the Audited Financial Statements or the company’s 10K. If it is not there then you can calculate it by taking the company’s net income and dividing it by the amount of shares in issue for that period.

Another thing to note is that there are two different types of PE ratios, the forward PE Ratio and the Trailing PE Ratio. The difference between the two is that the Trailing PE Ratio is historic. Meaning it is calculated using the Earnings for the last 12 months while the forward PE Ratio is calculated using the Analyst’s expectation for the current financial year. In other words, it is calculated using the total Earnings that the Analyst expects the company to record for the current financial year.

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