Valuation Ratios

A valuation ratio has price in its numerator and some measurable attribute in its denominator. The P/E ratio is the most common and typically best such ratio, although it is no panacea. Some other quantities regularly also appear as attributes in the denominator. Given a chosen valuation attribute, the analyst finds comparable firm(s), and multiplies the comparables' price-attribute ratios by the firm's own attribute to determine its value. This works well only if firms are similar enough. It is of course not possible to write down an exhaustive list of all other valuation ratios. Only the imagination limits the quantities that can be used in the denominator.

0 0

Post a comment