P/E Ratio
A valuation ratio if a comapny's current share price comparedto its per-share earnings.
Calculated by
Market Value per Share divided by Earnings per Share (EPS)
For example, if a company is currently trading at $30 per share and the EPS for the last 12 month were $2, then the P/E ratio of stock will be
P/E = Market Value er Share/Earnings per Share
P/E = 30/2
P/E = 20
In general, a high P/E suggest that the investors are expecting higher return compared to the companies with lower P/E. It is more useful to compare P/E ratio of one company with another company in the same industry. Since different industries have different growth.
P/E is also referred to as "Multiple" because it indicates how much investors are willing to pay per dollar of earnings. If the P/E is 20 it means the investors are willing to pay $20 for $1 dollar of current earnings.
A valuation ratio if a comapny's current share price comparedto its per-share earnings.
Calculated by
Market Value per Share divided by Earnings per Share (EPS)
For example, if a company is currently trading at $30 per share and the EPS for the last 12 month were $2, then the P/E ratio of stock will be
P/E = Market Value er Share/Earnings per Share
P/E = 30/2
P/E = 20
In general, a high P/E suggest that the investors are expecting higher return compared to the companies with lower P/E. It is more useful to compare P/E ratio of one company with another company in the same industry. Since different industries have different growth.
P/E is also referred to as "Multiple" because it indicates how much investors are willing to pay per dollar of earnings. If the P/E is 20 it means the investors are willing to pay $20 for $1 dollar of current earnings.
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