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What is Price-Earnings Ratio ?

Price-Earnings Ratio or P/E Ratio is a value that is arrived by dividing the market value of a single share of a company by its earnings per share. These numbers are available in the Financial Statements of a company.

The reason why this ratio is important is because it signifies the number of times a company's earnings per share is reflected in its per share price.

For some investors, the higher this ratio the higher a share's price has been valued. Such investors usually look for shares with lower P/E ratio in the belief that those shares may be undervalued and may move higher in price.

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