earnings multiple

Definition

The most common measure of how expensive a stock is. The earnings multiple is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period. The value is the same whether the calculation is done for the whole company or on a per-share basis. The higher the earnings multiple, the more the market is willing to pay for each dollar of annual earnings. The last year's earnings multiple would be actual, while current year and forward year earnings multiple would be estimates, but in each case, the "P" in the equation is the current price.
Companies that are not currently profitable (that is, ones which have negative earnings) don't have a earnings multiple at all. also called price/earnings ratio (P/E ratio).

Use earnings multiple in a sentence

You should try and figure out how an earnings multiple may be able to make even money for your investment.

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The summer of that year, the earnings multiple grew as the company became more and more prosperous and its stock price soared.

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At the meeting with my stock broker this afternoon; we analyzed my past year's investments earnings multiple, the stock's market capitalization after dividing by it's after-tax earnings, and decided on the same investment's as the market still pays well their earnings.

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