Price Earnings Ratio, usually the abbreviation P/E is used. It is a term that indicates how much the shareholders are willing to pay for 1 dollar earnings per share. Alternatively, it estimates the number of years needed to repay the share price by its yield (assuming a constant level of profit and price).
Relatively high value within the sector means that investors expect high growth of dividends in future or the share has little risk, thanks to which investors settle for lower yields. Conversely, low value may indicate low potential growth or higher risk of the company.
P/E = Share’s Market Price / Earnings per Share
Use of the P/E in practice: The ratio reflects the investors’ valuation of future development of the company.
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