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Mad Money Mailbag: Golden Ratio

A viewer learns about a stock's price-to-earnings ratio.

Editor's note: The following are questions received from viewers of "Mad Money," seen every day at 6 p.m. EST on CNBC.

What is the "forward P/E ratio" mean, and why is it always smaller than the "trailing P/E ratio"?And, is it illegal, or just a bad idea, to buy the stock of a competitor to the company you work for?-- Shaun from Arizona

Jim Cramer

: The forward price-to-earnings ratio often refers to a stock's valuation based on


earnings, while the trailing figure is derived from the past four quarters of


results. The forward P/E will often be a smaller number, as most companies are expected to consistently deliver positive earnings growth.

As to your other question, assuming you have no material insider information about a chief competitor, there is nothing stopping you from owning stock in a company that goes head-to-head with your employer. Just remember, if you also have shares in the company you work for, you need to maintain an overall diversified portfolio.

Want more Cramer? Check out Jim's rules and commandments for investing from his latest book by

clicking here