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Price to Earning (P/E) ratio of a company is a ratio of its current share price to its per-share earnings (Earnings Per Share-EPS), which can then be compared with other companies. This ratio helps in evaluating the attractiveness of an investment, as it tells how much the market is willing to pay for a company’s earnings. A higher P/E ratio means that the market is more willing to pay for the company’s earnings, indicating that the market has high hopes for the share’s future (and is over-valuing it), hence bidding up its price. On the other hand, a lower P/E ratio indicates that the market does not have much confidence in the share’s future.
Calculated as: Last closing price ÷ latest trailing 4-quarter earnings per share.