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The P/E ratio is literally the ratio of the Price per share to Earnings per share:

Price per share/ Earnings per share


Net Income / Market capitalization

It's basically how many dollars you pay for each dollar of earnings. So, for a PE of 8 times, you're paying $8 for every $1 of earnings.

It's just one metric of relative valuation that's commonly used. It's probably the most commonly used valuation metric.

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