The Price Earnings PE Ratio

Now that you understand the concept, let's dive into the details. The kind of ratios that you would be most interested in have value in the numerator and an attribute in the denominator. The reason is that if you have a good price-ratio estimate, you merely need to multiply it by your project's or firm's attribute, and out comes an estimate of price,

Price

Attributeyour project

V Attribute )

from comparables

= Price Estimate for your Project

For valuation, a price ratio (multiple) is most convenient.

We will spend a lot of time on the P/E ratio, and discuss other ratios thereafter. It will then become clear to you why the P/E ratio is the most popular comparables measure.

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