| The PEG of a company is calculated by dividing its prospective P/E ratio by the estimated future growth rate in earnings per share of the company. By itself the P/E ratio is a useful ratio because it shows how many times current earnings the shares cost Ñ in a sense, how many years you would have to wait to get your money back if the company paid out all its earnings to shareholders. But the P/E ratio looks at historical information and does not, as does the PEG ratio, relate the price of the shares to its future performance. The lower the PEG, the less you are being asked to pay for estimated future earnings.
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