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Price/earnings ratio

This ratio is used by some investors to gauge the relative value of a security in the light of current market conditions It is determined by dividing the price of a share of stock by earnings per share for a 12-month period. For example, if the market price is $8 and EPS is $1, the stock is said to be trading at a "multiple" of 8.

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Steven Huddart
Smeal College of Business, Penn State University, University Park, PA 16802-3603 USA
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was last updated on Wed, Oct 7, 2009.
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