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How to Use a P/E Ratio When Picking Stocks

What is a good price-to-earnings ratio? Well, let's go over what that is and how it's calculated first. Take a company's expected earnings for the next year. Then take the market capitalization (the market equity value of the company). Divide the market cap by the expected forward one year earnings number. That gives you the price-to-earnings ratio, or the earnings multiple. You'll notice it'll be quite a multiple. A low P/E ratio, for example, would be 10. So how does a company have $100 of expected earnings and a market value of $1,000? It's based on future cash flows for the next 6 to 10 years. If you still have questions, don't worry, we break it down even further in our 60 Seconds (or so) special series above. More Content to Help You Succeed! Subscribe Youtube Channel : Podcasts on Soundcloud Related: AMD CEO Lisa Su Talks New Chips, Confirms She's Staying: 'I Have A Lot to Do' Success: Top Women Leaders Share the Keys to Business Success Ready to Retire: The Biggest Threat to Your Retirement? Check Your Basement Ask the Expert: Cannabis One CEO Believes Now Is the Time to Invest in Cannabis TheStreet Feature: Here's Something Investors May Be Missing About the Drone Revolution C-Suite: AMD CEO Lisa Su Talks New Chips, Confirms She's Staying: 'I Have A Lot to Do' Catch Up: Today's Top News Videos Below

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