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Buying & Selling a Business

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  4. What is the Price / Earnings ( P/E ) Ratio ?

What is the Price / Earnings ( P/E ) Ratio ?

The P/E Ratio reflects the amount investors are willing to pay for each dollar of the business's earnings. The higher the P/E Ratio, the greater the investors confidence in the firm. The P/E ratio represents the "multiple" that the stock market places on the earnings of a company. Market price per share of common stock divided by Earnings per share of common stock = P/E Ratio.

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