Valuation ratios · Question 6 of 12
How is the price-earnings ratio (P/E) calculated?
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Answer
- C Share price divided by earnings per share
Explanation
The P/E ratio indicates how many times the annual earnings per share investors pay for a share. At a price of 60 euros and earnings of 4 euros per share, it is 15. A low P/E may indicate a cheap valuation, but also weak prospects.