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The Essential P/E: Understanding the stock market through the price-earnings ratio by Keith Anderson

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Chapter 3. The Price-Earnings Ratio (P/E)

Having covered earnings in considerable detail, we are finally able to use the earnings figure arrived at as one of the two inputs into the P/E calculation.

The other input is of course the share price. At the level of detail required for the P/E, the price is quickly dealt with. The figure used in the quoted P/E statistics is invariably the previous day’s closing price, so unlike the EPS figure it will not vary from source to source. However, as with EPS figures there is still a certain amount of indeterminacy involved: bid, mid, offer and closing prices may all be slightly different and the method of calculation varies depending on the trading platform. The closing price may not necessarily be the ...

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