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How to calculate the price-to-earnings ratio (P/E ratio)?

The P/E ratio is most commonly used for the valuation of equity securities. The rationale for this is that earnings are the key driver of the investments value.

Below is an example of how to calculate the PE ratio for two difference companies. As you can see, a higher share price isn’t always a good thing. Comparing the trading multiple will help you understand how the stock is trading relative to its peers.


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