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Price/earnings ratio

It indicates how much the market price represents relative to the selected earnings measure, often expressed as a multiple. Specify whether EPS is historical or forecast and whether the period and share basis are consistent. A high ratio can reflect growth expectations, perceived risk or unusual earnings; it does not by itself prove overvaluation. Negative, very small or volatile earnings can make the multiple difficult to interpret.

Worked example

A share trades at $12 and annual basic EPS is $0.80. The historical P/E ratio is $12 ÷ $0.80 = 15 times.

Common mistake

Dividing the share price by total company profit instead of per-share earnings, or comparing ratios without checking earnings period and accounting differences.

Where it appears in your exams

QualificationExamRelationshipPeriod
ACCA FR Direct September 2026–June 2027
ACCA SBR Supporting September 2026–June 2027