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There are various P/E ratios, all defined as:

The price per share in the numerator is the market price of a single share of the stock. The earnings per share
in the denominator depends on the type of P/E:

"Trailing P/E" or "P/E ttm": Earnings per share is the net income of the company for the most recent
12 month period, divided by number of shares outstanding. This is the most common meaning of "P/E"
if no other qualifier is specified. Monthly earning data for individual companies are not available, so
the previous four quarterly earnings reports are used and earnings per share is updated quarterly. Note,
companies individually choose their financial year so the schedule of updates will vary.
"Trailing P/E from continued operations": Instead of net income, uses operating earnings which
exclude earnings from discontinued operations, extraordinary items (e.g. one-off windfalls and
writedowns), or accounting changes. Note, longer-term P/E data such as Schiller's uses net earnings.
"Forward P/E", "P/Ef", or "estimated P/E": Instead of net income, uses estimated net earnings over
next 12 months. Estimates are typically derived as the mean of a select group of analysts (note,
selection criteria is rarely cited). In times of rapid economic dislocation, such estimates become less
relevant as "the situation changes" (e.g. new economic data is published and/or the basis of their
forecasts become obsolete) more quickly than analysts adjust their forecasts.

The P/E ratio can alternatively be calculated by dividing the company's market capitalization by its total
annual earnings.

For example, if stock A is trading at $24 and the earnings per share for the most recent 12 month period is
$3, then stock A has a P/E ratio of 24/3 or 8. Put another way, the purchaser of the stock is paying $8 for
every dollar of earnings. Companies with losses (negative earnings) or no profit have an undefined P/E ratio
(usually shown as Not applicable or "N/A"); sometimes, however, a negative P/E ratio may be shown.

By comparing price and earnings per share for a company, one can analyze the market's stock valuation of a
company and its shares relative to the income the company is actually generating. Stocks with higher (and/or
more certain) forecast earnings growth will usually have a higher P/E, and those expected to have lower
(and/or riskier) earnings growth will in most cases have a lower P/E. Investors can use the P/E ratio to
compare the value of stocks: if one stock has a P/E twice that of another stock, all things being equal
(especially the earnings growth rate), it is a less attractive investment. Companies are rarely equal, however,
and comparisons between industries, companies, and time periods may be misleading.

Since 1900, the average P/E ratio for the S&P 500 index has ranged from 4.78 in Dec 1920 to 44.20 in Dec
1999[4], with an average around 15[5]. The average P/E of the market varies in relation with, among other
factors, expected growth of earnings, expected stability of earnings, expected inflation, and yields of
competing investments. For example, when US treasuries yield high returns, investors pay less for a given
earnings per share and P/E's fall.

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