How Do You Calculate A P/E Ratio?
If you’re going to play the market, you will need to learn the lingo. Here is how to determine a stock’s P/E (price-earnings) ratio. Look up the latest price for the common stock for which you wish to calculate a price-earnings ratio. Find the company’s 10Q and 10K (quarterly and annual) reports on FreeEdgar, a Web site offering documents that public companies file with the Securities and Exchange Commission. The reports contain quarterly earnings data. Look up earnings-per-share data for each of the previous four quarters. Make sure you are looking at primary earnings per share from continuing operations before extraordinary items and accounting changes. Add the earnings-per-share figures for each quarter to derive an annualized sum. Divide the stock price by the annualized earnings-per-share figure. The result of this calculation is the P/E ratio. Compare the ratio with P/E ratios of other companies in the same industry. Try to find out why the ratio is different from that of peer co
