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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.


By: Fred

More investing advice

Correction: price to earning ratio is the market price divided by net earnings.

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