Price-to-earnings Ratio Explained
| Money : Investing When it comes to choosing which shares to buy in a sector, professionals often use terminology such as price-to-earnings ratio. But what exactly is this? Well, the p/e ratio is is the ordinary profits after tax divided by the number of shares in issue. In general the lower the p/e, the better value the shares can seem to be compared to other companies in that sector. Therefore when looking for companies to invest in in a sector professionals will often see companies with a lower p/e as more attractive candidates for them to buy into.
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