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This article is written for those who want to get better at using price to earnings ratios (P/E ratios). We'll show how you can use Quick Heal Technologies Limited's (NSE:QUICKHEAL) P/E ratio to inform your assessment of the investment opportunity. Quick Heal Technologies has a price to earnings ratio of 18.05, based on the last twelve months. That means that at current prices, buyers pay ₹18.05 for every ₹1 in trailing yearly profits.

Check out our latest analysis for Quick Heal Technologies

How Do You Calculate Quick Heal Technologies's P/E Ratio?

The formula for price to earnings is:

Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)

Or for Quick Heal Technologies:

P/E of 18.05 = ₹213.4 ÷ ₹11.82 (Based on the trailing twelve months to December 2018.)

Is A High P/E Ratio Good?

A higher P/E ratio means that investors are paying a higher price for each ₹1 of company earnings. That isn't a good or a bad thing on its own, but a high P/E means that buyers have a higher opinion of the business's prospects, relative to stocks with a lower P/E.

How Growth Rates Impact P/E Ratios

Earnings growth rates have a big influence on P/E ratios. Earnings growth means that in the future the 'E' will be higher. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. Then, a lower P/E should attract more buyers, pushing the share price up.

Quick Heal Technologies's earnings made like a rocket, taking off 56% last year. Having said that, the average EPS growth over the last three years wasn't so good, coming in at 8.4%.

Does Quick Heal Technologies Have A Relatively High Or Low P/E For Its Industry?

The P/E ratio essentially measures market expectations of a company. You can see in the image below that the average P/E (14.6) for companies in the software industry is lower than Quick Heal Technologies's P/E.

Its relatively high P/E ratio indicates that Quick Heal Technologies shareholders think it will perform better than other companies in its industry classification. The market is optimistic about the future, but that doesn't guarantee future growth. So investors should delve deeper. I like to check if company insiders have been buying or selling.

Remember: P/E Ratios Don't Consider The Balance Sheet

Don't forget that the P/E ratio considers market capitalization. Thus, the metric does not reflect cash or debt held by the company. In theory, a company can lower its future P/E ratio by using cash or debt to invest in growth.