The P/E ratio shows how much investors are willing to pay for each dollar of the firm's EPS.

Question

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The P/E ratio, or price-to-earnings ratio, is calculated by dividing the current market price of a stock by its earnings per share (EPS). This ratio can be used to gauge whether a stock is overpriced or undervalued, based on how much investors are willing to pay for each dollar of the firm's EPS. Therefore, the statement is true.

The P/E Ratio Shows How Much Investors Are Willing to Pay