price–earnings ratio

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The current market price of a company share divided by the earnings per share (eps) of the company. The P/E ratio usually refers to the annual eps and is expressed as a number (e.g. 5 or 10), often called the multiple of the company. Loosely, it can be thought of as the number of years it would take the company to earn an amount equal to its market value. High multiples, usually associated with low yields, indicate that the company is growing rapidly, while a low multiple is associated with dull no-growth stocks. The P/E ratio is one of the main indicators used by fundamental analysts to decide whether the shares in a company are expensive or cheap, relative to the market.

Subjects: Financial Institutions and Services — Accounting.

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