Price–Earnings Ratio
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Description
The price-earnings ratio , also known as P/E ratio , P/E , or PER , is the ratio of a company's share (stock) price to the company's earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued.
P/E = Share Price Earnings per Share {\displaystyle {\text{P/E}}={\frac {\text{Share Price}}{\text{Earnings per Share}}}}
As an example, if share A is trading at $24 and the earnings per share for the most recent 12-month period is $3, then share A has a P/E ratio of $24/$3/year = 8 years. Put another way, the purchaser of the share is investing $8 for every dollar of annual earnings; or, if earnings stayed constant it would take 8 years to recoup the share price. Companies with losses (negative earnings) or no profit have an undefined P/E ratio (usually shown as "not applicable" or "N/A"); sometimes, however, a negative P/E ratio may be shown.
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- Slug: priceearnings-ratio
- Total Views: 515
- Added: Jul 20, 2024