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4_Valuation Ratios

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Price to Earnings ratio (PE)

How many times more people pay for the share

Gives company a valuation against current earnings

=	Current share price (per share)
	EPS

=	$ 4.80	=	6
	$0.80

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Think about a fruit stall owner

Price to earnings ratio (PE)

You want to buy a stall

The stall makes $1,000 nett per year

You are willing to pay 3 times more (PE = 3)

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PE-Growth ratio (PEG)

Current price and earnings against future growth

Determine if company is expensive or cheap

=	PE
	Company’s growth rate

=	6	=	0.50
	12%

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Think about a fruit stall owner

PE-Growth ratio (PEG)

You want to buy a stall

You are willing to pay 2X more, grows 20% every year

PEG is 0.1

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Price to Book ratio (PB)

Measures company’s market value against book value

Determine if company is expensive or cheap

=	Current share price (per share)
	Book value (per share)

=	$ 4.80	=	2
	$2.40

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Think about a fruit stall owner

Price to book ratio (PB)

The stall’s market value is $10,000

The stall’s book value is $8,000

You are paying 1.25X or 25% above book value

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Price to Sales ratio (PS)

How many times more people pay for the share (similar to PE)

Gives company a valuation against current revenue

=	Current share price (per share)
	Sales/ revenue (per share)

=	$ 4.80	=	1.5
	$3.20

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Think about a fruit stall owner

Price to Sales ratio (PS)

You want to buy a stall

The stall makes $1,000 per year in sales

You are willing to pay 1.5 times more (PS = 1.5)

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Price to Cash Flow ratio (PCF)

How many times more people pay for the share (similar to PE)

Gives company a valuation against current operating cash flow

=	Current share price (per share)
	Operating cash flow (per share)

=	$ 4.80	=	2
	$2.40