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What does the price-to-earnings (P/E) ratio measure?
What does the price-to-earnings (P/E) ratio measure?
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What does the price-to-earnings (P/E) ratio measure?
Company profitability
Market valuation of a company
Debt levels
Asset efficiency
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The price-to-earnings (P/E) ratio measures the market valuation of a company relative to its earnings.
Questions & Step-by-step Solutions
1 item
Q
Q: What does the price-to-earnings (P/E) ratio measure?
Solution:
The price-to-earnings (P/E) ratio measures the market valuation of a company relative to its earnings.
Steps: 5
Show Steps
Step 1: Understand that the P/E ratio is a financial metric used to evaluate a company's stock price.
Step 2: Know that 'price' refers to the current market price of one share of the company's stock.
Step 3: Recognize that 'earnings' refers to the company's profit, usually measured over the last year.
Step 4: Realize that the P/E ratio is calculated by dividing the stock price by the earnings per share (EPS).
Step 5: Understand that a higher P/E ratio may indicate that investors expect future growth, while a lower P/E may suggest the opposite.
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