PE-ratio and PS-ratio

The PE-ratio and the PS-ratio are important indicators for stock investors. The PE-ratio is the share price divided by earnings per share. The PE-ratio indicates how a stock is valued and can be used to compare stocks.

When calculating the PE ratio, earnings per share are usually estimated by a forecast for the current year. A PE-ratio of 10 means that the price of the stock is 10 times the forecasted earnings per share and that the earnings per share is 10% of the share price.

The PS-ratio is the stock price divided by sales (revenue) per share. The PS-ratio gives information about the valuation for a company's shares. You cannot calculate the PE-ratio for companies that makes a loss, in companies with losses you can calculate the PS-ratio instead. When calculating the PS-ratio, the sales per share are usually projected for the current year. A PS-ratio of 5 means that the stock price is 5 times greater than the sales per share.

PE-ratio = share price / earnings per share
PS-ratio = share price / sales per share (revenue per share)