Forward PE ratio is calculated as close price of the stock divided by estimated earnings per share of the company for the current financial year. If the current stock price is Rs.300 and estimated EPS of the company for the current financial year is Rs.8, then forward PE ratio is 300/8 = 37.5 .

Forward PE ratio can be used to compare it with the current PE ratio of the company. Suppose current PE ratio of company A is 15 and the forward PE ratio is 12, it indicates that EPS of the company is expected to grow over the next year. The deeper the discount between current PE ratio and the forward PE ratio, the higher the potential for the stock price to increase.