Price earnings ratio valuation, Finance Basics

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Price Earnings Ratio Valuation

P/E ratio is traditionally employed for valuation of shares however it is an important ratio in the valuation of business. The P/E ratio is the measure of how many years earning would 'purchase' the market value of the business and is given via as:

P/E ratio = MV/E

MV = P/E x E

NB: The value of the business can be calculated with taking estimated earnings x P/E ratio.

 


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