5.3 - Compare the P/E ratios to; 1) to the market in...

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    PE RATIOS
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PE RATIOS The P/E is sometimes referred to as the "multiple", It shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, An investor is willing to pay $20 for $1 of current earnings.
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PE RATIOS A high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E . RULE OF THUMB: PE Ratio = GROWTH When PE Ratio is higher than growth rate, BE CAUTIOUS
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Unformatted text preview: Compare the P/E ratios to; 1) to the market in general or 2) against the company's own historical P/E. 3) other companies in the same industry, Not useful to compare the P/E of a technology company (high P/E) to a utility company (low P/E), as each has different growth prospects PE RATIOS The denominator (earnings) is based on an accounting measure of earnings. Susceptible to forms of manipulation, P/E only as good as the quality of the underlying earnings number...
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5.3 - Compare the P/E ratios to; 1) to the market in...

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