PE ratio = Market price per share ÷ Earnings per share (EPS)
Market price per share = Current stock price
EPS = Net income ÷ Number of outstanding shares
Use trailing EPS for trailing PE
Use projected EPS for forward PE
PE = Share price ÷ EPS
Example: if share price is 100 and EPS is 5, PE = 20
Higher PE means investors are paying more for each unit of earnings
Lower PE means investors are paying less for each unit of earnings