Q24RQ
Question
What is the price/earnings ratio, and how is it calculated?
Step-by-Step Solution
Verified Answer
P/E Ratio also known as the price multiple, or the earnings multipleis computed by dividing the stock’s market price by the earnings per share.
1Step 1: Introduction to topic
The P/E ratio differs across industries and therefore, should either be contrasted with its companions having a similar operational activity of comparable size or with its historical P/E to assess whether a stock is undervalued or overvalued.
2Step 2: The price/earnings ratio
The price/earnings ratio is the financial ratio of the market price of a share of common stock to the corporate's earnings per share. It is calculated by taking the market price per share of common stock and dividing it by earnings per share.
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