---
title: "Price-to-Earnings Ratio"
url: "https://mahouse.world/glossary/price-to-earnings-ratio"
type: "glossary term"
topic: "Valuation"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Price-to-Earnings Ratio

The price-to-earnings ratio is a company's share price divided by its earnings per share — its market value divided by net profit: how many years of after-tax earnings the market pays for. Banks and lenders are valued on it because interest is part of their business; for fast-growing or loss-making fintechs it is huge or meaningless, and other multiples take over.

**Also known as:** P/E ratio, PE ratio, Earnings multiple

## Key facts

- **Used at:** valuation of listed companies and banks; accretion analysis (a buyer on a higher P/E than the target is accretive paying in shares); the equity-side check on an EV/EBITDA valuation
- **Binding:** no — a ratio; but a bank's P/E and price-to-book together are the whole market view of it
- **Typical ranges in 2024–2025:** European banks 6–10× earnings; US large banks 10–14×; listed payments processors 15–25×; profitable fintech platforms 20–40×; loss-making ones not applicable
- **Typical variants:** trailing (last twelve months' earnings) and forward (next twelve months' consensus); "adjusted" earnings excluding amortisation of acquired intangibles and one-offs — which for an acquisitive fintech can be double the reported figure
- **Parties:** investors and analysts; boards judging their own valuation; acquirers deciding whether a deal is accretive

## How the price-to-earnings ratio works in practice

A bank earns €400m and has 200m shares: €2.00 a share. Its shares trade at €24: a P/E of 12. The market is saying it will pay twelve years of current earnings — because it expects them to hold or grow, and requires a return of roughly the earnings yield, 8.3%, plus growth. A rival at 8× is either riskier, growing less, or cheap; the analysis is finding out which. For banks the P/E works because their debt is their business — deposits and borrowings fund the lending — so enterprise-value multiples that strip out debt make no sense, and earnings after interest are the right measure. Price-to-book sits beside it: a bank earning more than its cost of equity trades above book and on a P/E that reflects the growth.

For operating companies the P/E is distorted by financing and accounting. Two payments companies with the same EBITDA and different leverage have different earnings and different P/Es; two with different amortisation policies likewise. That is why deals are struck on EV/EBITDA and the P/E is a check on the equity side — and why acquirers watch it for accretion: a buyer on 20× paying 12× in shares raises its earnings per share, whatever the deal's merits.

For loss-making fintechs the ratio is undefined and for barely profitable ones absurd — a company earning €1m and valued at €500m is on 500× — which is why such companies are valued on revenue, gross profit or users until earnings arrive.

## Example

A listed payments company trades at €30 with earnings of €1.50 a share: a P/E of 20, on earnings that are "adjusted" to exclude €0.40 a share of amortisation from past acquisitions — the reported P/E is 27. A bank on 10× considers buying it at a 30% premium, €39 — 26× adjusted earnings. Paying in its own shares, the bank issues stock on a 10% earnings yield to buy a 3.8% one: sharply dilutive. Paying in cash borrowed at 4.5% after tax, it buys a 3.8% yield with 4.5% money: still dilutive. The deal is justified by growth and synergies — the payments company's earnings are forecast to double in four years — and the board announces accretion from year three. The P/E told the market what the bank was paying; the growth was the argument for it.

## Common mistakes

- Comparing P/Es across companies with different leverage or accounting, when EV/EBITDA would compare like with like.
- Using adjusted earnings without saying what was adjusted, especially acquired-intangible amortisation.
- Reading a high P/E as "expensive" when it is a growth rate in disguise, or a low one as "cheap" when it is a risk.
- Valuing a loss-making fintech on a P/E, or a bank on EV/EBITDA.
- Trailing P/E for a company whose earnings are changing fast in either direction.

## Related terms

- [EV/EBITDA Multiple](https://mahouse.world/glossary/ev-ebitda-multiple.md)
- [Tangible Book Value](https://mahouse.world/glossary/tangible-book-value.md)
- [Accretive Acquisition](https://mahouse.world/glossary/accretive-acquisition.md)
- [Comparable Company Analysis](https://mahouse.world/glossary/comparable-company-analysis.md)
- [Dividend Yield](https://mahouse.world/glossary/dividend-yield.md)
- [Cost of Equity](https://mahouse.world/glossary/cost-of-equity.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov