MARKET VALUATION RATIOS

Question 1

Market Valuation Ratios

What are the 3 Market Valuation Ratios?

Answer 1

*Price-to-Earnings (P/E) Ratio
*Earnings Per Share (EPS)
*Dividend Yield

Question 2

Market Valuation Ratios

P/E Ratio =

Answer 2

P/E= Market Price per Share / Earnings Per Share
Good if: Context-dependent.

A lower P/E (e.g., below 15) may indicate undervaluation, while a higher P/E (e.g., above 25) suggests optimism about growth.

Question 3

Market Valuation Ratios

Earnings Per Share (EPS) =

Answer 3

EPS = Net Income - Preferred Dividends / Weighted Average Shars Outstanding

Good if: Higher.
A strong EPS indicates high profitability. An EPS above $2 is generally seen as favorable, though industry-specific benchmarks apply.

Question 4

Market Valuation Ratios

Dividend Yield =

Answer 4

Dividend Yield = Annual Dividnd Per Share / Market Price Per Share x 100

Good if: Typically 3–5%.
A higher yield (e.g., above 5%) may indicate strong income potential, but excessive yields might signal financial instability or lack of reinvestment.