UK Accounting Glossary
A trailing PE is a price-earnings ratio based on the most recent 12 months’ results. U.S. companies report quarterly, so a trailing PE is computed based on the most recent four quarters. For example, if the stock price is 20, and quarterly earnings were $.50, $.30, $.90, and $.30 – or $2.00 total – the trailing PE is 20/2, or 10. A trailing PE is used instead of fiscal-year earnings because a trailing PE is more current. For example, if the date is December 30, 2XX2, the most recent fiscal-year earnings are likely for the year ended December 31, 2XX1 – nearly one year ago. Notably, the trailing PE is used in stock tables, like those in the Wall Street Journal. But a trailing PE is still a historical number that reflects past performance. In addition to the trailing PE, investors will ordinarily look at prospective (or “forward”) PEs as well, which are based on analyst estimates of future earnings.
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This glossary post was last updated: 5th February 2020.