Chapter 16 · Financial Ratios
Valuation ratios
How expensive is this, and compared with what?
29 of 66 · 10 min
| Ratio | Formula | What it says |
|---|---|---|
| P/E | Price ÷ EPS | Years of current earnings you are paying for |
| P/B | Price ÷ Book value per share | Price against stated net assets |
| PEG | P/E ÷ earnings growth rate | P/E adjusted for growth |
| Enterprise value | Market cap + Debt − Cash | What it costs to buy the whole business |
| EV/EBITDA | EV ÷ EBITDA | Valuation independent of capital structure |
| Dividend yield | Dividend per share ÷ Price | Cash return on what you paid |
| Book value per share | Equity ÷ Shares | Stated net assets per share |
Worked example
Price Rs 210; EPS Rs 28.13; book value per share Rs 140; dividend Rs 8; EBITDA Rs 1,20,00,000; 2,00,000 shares; debt Rs 3,00,00,000; cash Rs 40,00,000.
- P/E = 210 ÷ 28.13 = 7.5
- P/B = 210 ÷ 140 = 1.5
- Dividend yield = 8 ÷ 210 = 3.8%
- Market cap = 210 × 2,00,000 = Rs 4,20,00,000
- EV = 4,20,00,000 + 3,00,00,000 − 40,00,000 = Rs 6,80,00,000
- EV/EBITDA = 6,80,00,000 ÷ 1,20,00,000 = 5.7
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