The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.

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The price/earnings ratio (P/E) method is determined by dividing the market price of common stock by the earnings per share (EPS), not by retained earnings. Retained earnings are a component of the balance sheet and represent the portion of a company's net income that is retained for future use, not a measure of the price investors are willing to pay for a company's common stock.

The Price/earnings Ratio (Multiple of Earnings) Method Is Determined by Dividing