P/E Ratio stands for Price to Earnings ratio.
It is a measure of a company’s current stock price relative to its earnings. It gives you a fair idea of what the market is willing to pay for a given company’s earnings.
The formula is P/E ratio = Market Price of the share / Earning per share.
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To put it in simple words, we can say the P/E ratio is the price an investor is willing to pay for earnings of one rupee from that share.
P/E ratio varies from industry to industry. Each industry has a different range of PE ratio that is considered normal.
For Some sectors, P/E is a high number whereas for other sectors P/E is a low number. So a P/E of stock of X industry should not be compared with a P/E of stock of Y industry.
To know PE Ratio in-depth, do watch our video.
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