The financial services sector is one of the most important drivers of the U.S. economy. The sector comes with different risks, which tend to change based on individual sub-sectors, which is why it's important to give yourself broad exposure when making your investments. One of the ways you can analyze the sector is to look at its price-to-earnings (P/E) ratio. This is the price someone will pay for each dollar of a company's (or industry's) earnings. In this article, we explore P/E ratios and review the average ratio in the financial sector.

What Is the Price-to-Earnings (P/E) Ratio?

Let's review the concept of price-to-earnings ratio before we look at ratios in the financial sector. The P/E ratio is one of the most common metrics used by investors to analyze whether investing in a company is a worthwhile endeavor. It is the price an investor is willing to pay for each dollar of a company's earnings. The P/E ratio is calc🦄ulated with the following mathematical formula:

$\begin{aligned} \text{P/E Ratio} = \frac{ \text {Price Per Share} }{ \text {Earnings Per Share} } \\ \end{aligned}$P/E Ratio=Earnings Per SharePrice Per Share​​

P/E Ratios Variations

There are several versions of P/E ratios that investors may rely on to gauge a company's fiscal well-being. These include:

• Trailing P/E: Trailing P/E uses the weighted average number of common shares presently on the open market and divides that figure by the 澳洲幸运5开奖号码历史查询:net income from the last 12 months. This is the default P/E ratio if no other type is designated.
• Trailing P/E from Continued Operations: This metric relies on operating earnings that do not include earnings from operations that have ceased. It also excludes so-called extraordinary operations, which define unusual events like accounting changes, 澳洲幸运5开奖号码历史查询:write-downs, and one-time windfalls.
• Forward P/E: Rather than relying on a company's net income, the 澳洲幸运5开奖号码历史查询:forward P/E ratio factors in the estimated net earnings for the upcoming 12 months. To cultivate this number, several analysts weigh in with their predictions, and the mean value is then plugged into the formula. 

Average P/E Ratio for the Financial🌠 Services Industry

The 澳洲幸运5开奖号码历史查询:financial services industry comprises a sizable portion of the U.S. 澳洲幸运5开奖号码历史查询:gross domestic product (GDP). The sector represents about 8% of GDP in the U.S. For this reason, investors religiously track the P/E ratios of financial services companie🗹s because they broadly indicate the strength of the overall economy. Some of the most commonly analyzed P/E ratios come from subsectors like brokerage firms, banking operations, asset managers, as well as debt and credit service providers.

For example, the average P/E ratio of the financial institutions was 13.3 in January 2025. This metric includ🔯es the sector averages of specific financial service categories, including banks, which had a P/E ratio of 12.7, credit services (14.0), asset management (8.8), capital markets (26.8), and the insurance sector (12.3).

The Bottom Line

The P/E ratio is a critical financial metric when you're trying to make investment decisions, including whether to invest in the financial industry. While you can find industry and company-specific ratios on financial websites, you can also calculate the ratio yourself by dividing a company's share price by its earnings per share. While it's hard to say what a good P/E ratio is, it's always a good idea to compare those of similar companies within the same sub-sector of the financial industry so you have an apples-to-apples comparison.