The PER is calculated by dividing the share price by the earnings per share (EPS). For example, for a stock trading at 100 euros with an EPS of 5 euros, the PER is 20 (100 / 5). This formula enables assessment of a stock's relative valuation by comparing its price to the earnings generated per share.

EPS is calculated by dividing net income attributable to the group by the number of outstanding shares. For example, for a company with net income of 50 million euros and 10 million shares, the EPS is 5 euros (50,000,000 / 10,000,000). It is important to exclude treasury shares that do not receive dividends.

A high PER may indicate overvaluation if growth expectations are not realized. For example, a PER above 20 may signal that investors are paying too much for current earnings, which can lead to corrections if results do not follow through.

The PER is not applicable to loss-making companies because EPS would be negative. It is also insensitive to debt and cash position, and depends on the accounting standards used. These limitations highlight the importance of supplementing the analysis with other indicators.

The inverse of the PER, called E/P or earnings yield, represents an earnings-based return. For example, a PER of 20 corresponds to a yield of 5% (1/20), which allows investors to compare equities with bonds. This is crucial for arbitrage between different asset classes.

The forward PER is based on forecast EPS, incorporating analyst growth expectations. Unlike the trailing PER which uses historical data, the forward PER enables assessment of a stock's future valuation, which is crucial for investors seeking to anticipate future performance.

Technology sectors generally have high PERs due to growth expectations, while banking and energy sectors have more modest PERs. This classification helps understand market expectations for each sector.

The Shiller PER, or CAPE (Cyclically Adjusted Price Earnings), uses the average EPS of the last ten years adjusted for inflation. This helps smooth out cyclical effects and assess market valuation over a long period, providing a more stable perspective than the standard PER.