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What is the formula for calculating the Price Earnings Ratio?

The PE ratio is the price per share divided by the earnings per share. So, if the price is $1 and the company earns 10c per share, the PE ratio is 10 times. The PE ratio is a measure of relative valuation. I company with a PE ratio of 10 is cheaper than a company with a PE ratio of 15, because you are only paying 10 times the earnings compared with 15 times the earnings. Another way of looking at the ratio is that it is the number of years at the present earnings rate that it will take you to recoup your purchase price.

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