Let's revise our primary school maths arithmetic.
c = a / b
c increase when
(1) aincrease
(2) bdecrease
c decrease when
(3) adecrease
(4) bincrease
Too simple? Ok. Let's replace "c" with "P/E ratio", "a" with "Share Price" and "b" with "Earning per Shares (EPS)"
P/E = Share Price / EPS
Some like to buy share based on P/E ratio, but remember the catch. P/E increase is due to Share Price increase (good news release, market blooming, big player buying, share buyback) or Earning decreasing? So, if you buy a share with P/E of 6 (which claim a good "buy"?) may just because of earning is bad.
Another case. Replace "c" = EPS, "a" = Earning , "b" = No. of Shares
EPS = Earning / No. of ...
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