**How the P/E Ratio Works**

The P/E ratio stands for Share Price divided by Earnings Per Share (EPS). The (ttm) following the ratio stands for Trailing Twelve Months, which means the last 12 months of EPS are used in the calculation. **TradersPro quotes the TTM P/E ratio**. Our fundamental data is provided by Zacks. A leader in fundamental data.

Imagine that a stock was trading for $40 per share and the total earnings per share over the last 12 months was $1.60. From that information you would know that its P/E ratio was 25 ($40 ÷ $1.60 = 25).

One way to think about the P/E ratio is that it tells you how much investors are willing to pay to “buy” the profits of a company. In the previous example, investors are willing to pay 25 times the annual profits of the company to buy ownership through shares. The flaw in this example is that the shareholder doesn’t actually get all of those profits (although some of it might be returned in the form of dividends).

The P/E ratio will change on a day-to-day basis because the stock’s price is one of the factors used in the calculation. The EPS for a company will only change once per quarter when new earnings reports are released. If earnings change dramatically from one quarter to the next the P/E ratio could change very quickly, but that kind of change will be rare.