The PE ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share.

A company's PE ratio is computed by dividing the current market price of one share of a company's stock by that company's per-share earnings. A company's per-share earnings are simply the company's after-tax profit divided by number of outstanding shares.

By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a company and its shares relative to the income the company is actually generating. Investors can use the PE ratio to compare the value of stocks: if one stock has a PE twice that of another stock, all things being equal (especially the earnings growth rate), it is a less attractive investment.

Like other indicators, PE is best viewed over time, looking for a trend. A company with a steadily increasing PE is being viewed by the investment community as becoming more and more speculative. And of course a company's PE ratio changes every day as the stock price fluctuates.