P/E ratio or Price/Earnings ratio definition

P/E ratio or Price/Earnings ratio measures how expensive the stock is relative to what it earns. P/E ratio is calculated by dividing stock price by annual earnings per share. For example, if ABCD stock is trading at $20/share, and it has annual earnings of $2/share, the P/E ration is 10 (20 divided by 2).

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