When the most famous multiple works — and when it misleads.
| Concept | Explanation | |---|---| | Trailing P/E | Price divided by historical earnings per share. | | Forward P/E | Price divided by expected future earnings per share. | | Earnings yield | Earnings per share divided by price; the inverse of P/E. | | PEG ratio | P/E divided by an earnings-growth estimate. | | Normalized earnings | Estimate of earnings after adjusting temporary cycles or unusual items. |
P/E is most meaningful when earnings are positive, reasonably stable, and comparable. It can be misleading for cyclical, loss-making, or highly leveraged companies.