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Definition of 'P/E Ratio'
P/E stands for price to earnings ratio. It is a measure to determine how expensive a stock is. The ratio is calculated by taking the share market value and dividing it by the company's earnings per share. An example would be if the share price is $10 and the earnings per share is $2, the P/E ratio would be 5. the stock is trading at 5 times earnings. When you compare the P/E ratio of companies in the same industry, the ones with the higher P/E ratio's would be riskier than the lower ones.