Price earnings ratio, also known as price earnings multiple. The share price divided by the EPS. This method brings every company onto an equivalent footing. Companies earning similar profits, with similar prospects, can have a different number of shares in issue, and, therefore, completely different share prices. The PE makes them directly comparable. Although two companies may have earned identical profits in a particular year, one of them may have vastly superior growth prospects. As such, investors will pay more for that company's earnings now, as, at a point in the future, if the anticipated growth is realised, the earnings will be greater. For example, in 2000 certain internet and telecom companies were much more highly rated than, say, water companies, as, although their 1999/2000 earnings were lower, investors believed that over the next ten years their growth prospects were such that there would be significant earnings attributable to shareholders.