4) Investment Valuation Ratios
4.1) Price/Book Value Ratio
4.1.1) used by investors which compares a stock's per-share price (market value) to its book value (shareholders' equity).
4.1.2) This ratio, expressed as a multiple (i.e. how many times a company's stock is trading per share compared to the company's book value per share), is an indication of how much shareholders are paying for the net assets of a company.
4.1.3) The book value of a company is the value of a company's assets expressed on the balance sheet. It is the difference between the balance sheet assets and balance sheet liabilities and is an estimation of the value if it were to be liquidated.
4.1.4) The price/book value ratio, often expressed simply as "price-to-book", provides investors a way to compare the market value, or what they are paying for each share, to a conservative measure of the value of the firm.
| Price/Book Value Ratio = | Stock Price Per Share |
| Shareholders' Equity Per Share |
4.2) Price/Cash Flow Ratio
4.2.1) used by investors to evaluate the investment attractiveness, from a value standpoint, of a company's stock.
4.2.2) This metric compares the stock's market price to the amount of cash flow the company generates on a per-share basis.
4.2.3) This ratio is similar to the price/earnings ratio, except that the price/cash flow ratio (P/CF) is seen by some as a more reliable basis than earnings per share to evaluate the acceptability, or lack thereof, of a stock's current pricing.
4.2.4) The argument for using cash flow over earnings is that the former is not easily manipulated, while the same cannot be said for earnings, which, unlike cash flow, are affected by depreciation and other non-cash factors.
| Price/Cash Flow Ratio = | Stock Price Per Share |
| Operating Cash Flow Per Share |
4.3) Price/Earnings Ratio
4.3.1) is the best known of the investment valuation indicators.
4.3.2) has its imperfections, but it is nevertheless the most widely reported and used valuation by investment professionals and the investing public.
4.3.3) The financial reporting of both companies and investment research services use a basic earnings per share (EPS) figure divided into the current stock price to calculate the P/E multiple (i.e. how many times a stock is trading (its price) per each dollar of EPS).
4.3.4) It's not surprising that estimated EPS figures are often very optimistic during bull markets, while reflecting pessimism during bear markets.
4.3.5) Also, as a matter of historical record, it's no secret that the accuracy of stock analyst earnings estimates should be looked at skeptically by investors.
4.3.6) Nevertheless, analyst estimates and opinions based on forward-looking projections of a company's earnings do play a role in stock-pricing considerations.
4.3.7) Historically, the average P/E ratio for the broad market has been around 15, although it can fluctuate significantly depending on economic and market conditions. The ratio will also vary widely among different companies and industries.
| Price/Earnings Ratio = | Stock Price Per Share |
| Earnings Per Share(EPS) |
4.4) Price/Earnings To Growth Ratio
4.4.1) commonly referred to as the PEG ratio, is obviously closely related to the P/E ratio.
4.4.2) is a refinement of the P/E ratio and factors in a stock's estimated earnings growth into its current valuation.
4.4.3) By comparing a stock's P/E ratio with its projected, or estimated, earnings per share (EPS) growth, investors are given insight into the degree of overpricing or underpricing of a stock's current valuation, as indicated by the traditional P/E ratio.
4.4.4) The general consensus is that if the PEG ratio indicates a value of 1, this means that the market is correctly valuing (the current P/E ratio) a stock in accordance with the stock's current estimated earnings per share growth.
4.4.5) If the PEG ratio is less than 1, this means that EPS growth is potentially able to surpass the market's current valuation. In other words, the stock's price is being undervalued. On the other hand, stocks with high PEG ratios can indicate just the opposite - that the stock is currently overvalued.
| Price/Earnings To Growth(EPG) Ratio = | Price/Earnings Ratio(PE) |
| Earnings Per Share(EPS) Growth |
4.5) Price/Sales Ratio
4.5.1) is another stock valuation indicator similar to the P/E ratio.
4.5.2) measures the price of a company's stock against its annual sales, instead of earnings.
4.5.3) Like the P/E ratio, the P/S reflects how many times investors are paying for every dollar of a company's sales.
4.5.4) Since earnings are subject, to one degree or another, to accounting estimates and management manipulation, many investors consider a company's sales (revenue) figure a more reliable ratio component in calculating a stock's price multiple than the earnings figure.
| Price/Sales Ratio = | Stock Price Per Share |
| Net Sales(Revenue) Per Share |
4.6) Dividend Yield
4.6.1) is expressed as an annual percentage and is calculated as the company's annual cash dividend per share divided by the current price of the stock.
4.6.2) The dividend yield is found in the stock quotes of dividend-paying companies.
4.6.3) Investors should note that stock quotes record the per share dollar amount of a company's latest quarterly declared dividend. This quarterly dollar amount is annualized and compared to the current stock price to generate the per annum dividend yield, which represents an expected return.
4.6.4) Income investors value a dividend-paying stock, while growth investors have little interest in dividends, preferring to capture large capital gains.
4.6.5) Whatever your investing style, it is a matter of historical record that dividend-paying stocks have performed better than non-paying-dividend stocks over the long term.
| Dividend Yield = | Annual Dividend Per Share |
| Stock Price Per Share |
4.7) Enterprise Value Multiple
4.7.1) is calculated by dividing a company's "enterprise value" by its earnings before interest expense, taxes, depreciation and amortization (EBITDA).
4.7.2) Overall, this measurement allows investors to assess a company on the same basis as that of an acquirer.
4.7.3) As a rough calculation, enterprise value multiple serves as a proxy for how long it would take for an acquisition to earn enough to pay off its costs (assuming no change in EBITDA).
| Enterprise Value Multiple = | Enterprise Value |
| EBITDA |
EBITDA = earnings before interest expense, taxes, depreciation and amortization
Source: http://www.fncalculator.com/financialcalculator?type=financialRatios#
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