Price/earnings (P/e) ratio

The price/earnings ratio is a quick way to establish a firm's relative value.

Updated August 2018

Many investors use the price/earnings (p/e) ratio as a measure of whether a share is cheap or not. There's a good reason for that it's one of the simplest valuation measures out there. You simply take the share price, and divide by the earnings (profits) per share. So a company with a share price of 50p and earnings per share (EPS) of 5p would have a p/e ratio of 10.

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