- Formula
- Equity value ÷ normalized net earnings
- Unit
- Multiple (×)
What it measures
Price/earnings compares equity value—not enterprise value—with normalized earnings available to equity holders.
How the formula should be applied
For a whole private company, the numerator is equity value and the denominator is normalized net earnings. For listed shares, the equivalent expression is market price per share divided by earnings per share.
When it is useful
Equity-level comparisons when financing, tax, and non-operating effects are representative and sufficiently comparable across the companies being assessed.
How to interpret it
A higher P/E can reflect expected earnings growth, durability, or lower equity risk. Because debt and interest expense are already reflected in equity value and net earnings, P/E should not be mixed mechanically with enterprise-value multiples.
Important limitations
- Capital structure, tax, minority interests, and non-operating income can sharply reduce comparability.
- Net earnings require normalization for exceptional gains, impairments, owner-specific costs, and other non-recurring items.
- P/E is not meaningful when normalized earnings are zero or negative.
Worked example
At 8.0× normalized net earnings of €400,000, the indicated equity value is €3.2 million before any company-specific adjustments not already reflected in earnings.
Method and provenance
This page defines the metric. Published values, percentiles, sample coverage, geography, confidence, vintage, and source references belong to the relevant business-type dataset and must be read there.