The earnings multiplier frames a company’s current stock price in terms of the company’s earnings per share (EPS) of stock. It presents the stock’s market value as a function of the company’s earnings and is computed as (price per share/earnings per share). It is also known as the price-to-earnings (P/E) ratio. It can be used as a simplified valuation tool for comparing relative costliness of the stocks of similar companies, and for judging current stock prices against their historical prices on an earnings relative basis.
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