Trailing P/E

The trailing P/E uses actual, reported earnings rather than forecasts. It is the most common version of the price-to-earnings ratio quoted in financial news and data services.

For example, if a share trades at 45 and the company's earnings per share over the last four quarters add up to 3, the trailing P/E is 15.

The main strength of trailing P/E is that it is based on real results, not estimates, so it is objective and easy to verify.

Its main weakness is that it looks backwards. If a company's earnings are growing quickly, the trailing P/E may make the shares look more expensive than they really are compared with future earnings. If earnings are about to fall, it may make them look cheaper than they are. One-off gains or losses in the past year can also distort it.

Investors often look at trailing P/E alongside forward P/E, which uses expected earnings, to get a balanced picture of a company's valuation.