P/E Ratio


P/E Ratio, or Price-Earnings Ratio

is a valuation ratio of a company's current share price compared to its earnings per share. Divide market value per share with earnings per share (EPS) to get the ratio.

The Earnings per Share (EPS) is usually taken from the last 12 months but can also be taken from the forward, or projected, earnings in the next 12 months. The third variation adds last two quarters and the projected next two quarters to get the value.

This indicator is also called "price multiple" or "earnings multiple". It is called multiple because it shows how much investors are willing to pay per dollar of earnings. A P/E of 10 means that investors pay $10 for $1 of earnings.

This indicator is highly dependent on accounting practices involved in calculating earnings and is susceptible to manipulation.

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