P/E Ratio or Price – Earnings Ratio

P/E Ratio or Price – Earnings Ratio An indicator of how highly a share is valued in the market. Arrived at by dividing the closing price of a share on a particular day by the earnings per share (EPS). The ratio tends to be high in the case of highly rated shares. The average P/E ratio for companies in an industry group is often given in investment journals like the CAPITAL MARKET. A high P/E ratio, however, does not necessarily indicate a bright future for the company; share prices of closely held companies are sometimes pegged at very high or low levels, and since these are seldom traded, an unrealistically high or low P/E ratio can be sustained over time. A low P/E where the earning per share is high, often indicates that a share is underpriced

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