The P/E ratio is determined by dividing the current price of a common share by the earnings per common share (EPS) for the latest reporting period in order to determine a company’s value in the marketplace.
For example, a publicly traded retailer has a share price of $24 and earnings per share of $2.40, giving it a P/E ratio of 10. A competitor with the same EPS but a P/E ratio of 16 is valued higher by the market — perhaps reflecting better growth prospects or stronger brand.
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