A P/E of twenty-five means investors pay twenty-five dollars for each dollar the company earns in a year. Read the other way round, the earnings yield is four per cent, which is the number worth comparing against the yield on a Treasury note.
Trailing P/E uses the last twelve months of reported profit and is a fact. Forward P/E uses analyst estimates for the year ahead and is a forecast, usually a flattering one, since consensus estimates start optimistic and are revised down as the year progresses.
The ratio only compares like with like. A high multiple is normal for a fast-growing software company and a warning sign for a utility, and the measure breaks entirely when earnings are negative, near zero, or distorted by a one-off charge.