Thursday, November 23, 2006

PE Ratio (Price Earnings Ratio)

Here is a good article on the Price to Earnings Ratio, how it is calculated and when / when not to use it.

The Price to Earnings (P/E) Ratio is the most commonly used valuation metric used by investors to help determine is individual stocks are reasonably priced. It is a simple ratio to calculate but can be confusing to interpret. The ratio can be useful in some cases yet useless in others. The ratio was popularized by Benjamin Graham - author of "The Intelligent Investor" (a must read for all serious investors). Graham used this financial ratio as a quick way to determine if the company stock was trading on an investment or speculative basis.

Find the rest of the article here

Its important to understand how Price to Earnings is calculated and it is one of the initial tools I use to limit the amount of stocks I need to look through to find a golden opportunity.

Good Luck investing

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