Why The Profits Earnings Ratio Is Useful
| Money : Stocks And Shares It is a fair enough question to ask what use the P/E ratio is and why so many investors look at it when deciding which companies to invest in. Why do we think companies with a low P/E ratio relative to their sector may look 'cheap' and worth buying or more attractive? Well the P/E essentially tells you how much an investor will pay for a dollar of a companies earnings. If the P/E ratio is at 14, the answer is they would pay $14 for each dollar of earnings.
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