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Chapter 19
4.2 Price/Earnings (PE) ratio
A PE ratio gives a basic measure of company performance. It
expresses the amount the shareholders are prepared to pay for the
share as a multiple of current earnings.
Share price
PE ratio = ––––––––––
EPS
A high PE ratio indicates that investors perceive the form’s earnings to
be of high quality – usually a mixture of high growth and/or lower risk
expectations.
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