Price earning ratio is calculated by dividing market price of a share by its earning per share. It is an indicator of expected growth in earning per share. PE ratio tells how much money an investor is willing to pay to buy a share for every one dollar income to be derived from it. A high PE ratio indicates that EPS of a stock is expected to increase in future while a low PE ratio indicates that there is not much growth potential in earnings of a share and hence it is not much attractive to investors.
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