WALL STREET: What Price Profits?

Ultimately, what an investor pays for when he buys stock is a share of the profits that a company makes. But how much must he pay for the right to claim a dollar of the firm's earnings as his own? One answer lies in the price/earnings ratio, which is computed by dividing the closing price of a company's stock by its net income per share for the most recent twelve months. If a company earns $2 per share, and its stock sells for $34, its price/earnings ratio is 17....

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