The Price to Earnings Ratio (also called the PE ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share.
It is calculated by dividing price by last year's Diluted Normalised Earnings per Share, i.e. taking into account options and other sources of dilution and any unusual/one-time/special items in order to better reflect underlying results.
The reciprocal of the P/E ratio is known as the Earnings Yield.
This is is the primary valuation ratio used by most equity investors. A high P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio. The P/E ratio can be seen as being expressed in years, in the sense that it shows the number of years of earnings which would be required to pay back the purchase price, ignoring inflation.
Unlike the EV/EBITDA multiple which is capital structure-neutral, the price-to-earnings ratio reflects the capital structure of the company in question