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Get Started in Shares by Glen Arnold

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Price-earnings ratio

The price to earnings ratio (PER or PE) is an important measure used by most investors to get an idea of how high the share price is compared with the profit after tax per share reported in the past year. Many companies can be on high ratios, say a price of 30 times last year’s earnings, if investors expect the earnings to grow rapidly over the next few years. A more normal ratio is around 7–15 times last year’s earnings. A slow (no) growing firm might be on a PER less than 7. Those with no PER shown in the column made losses rather than profits in the last 12 months. There is a lot more on PER in Chapter 12.

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