Price / Earnings (P/E) Ratio
Also called P/E
A Price / Earnings ratio is a measure of a company’s Share Price over their Earnings Per Share (Net Income per Share).
Let’s say that FacelessFlowers trades at $20, has 1,000 shares and a Net Income of $2,000.
Share Price = $20
Earnings per Share = $2,000 / 1,000 = $2
P / E Ratio = 10x
In the room
P/E is the one multiple non-finance people know, so interviewers use it to test precision. The key distinction: P/E is an equity value multiple, while EV/EBITDA is an enterprise value multiple — mixing up numerator and denominator is a common and costly mistake.