Module 6: Financial Valuation Methods Part 1

Question 1

Price Earnings ratio (P/E ratio)

Answer 1

P/E ratio = stock price or value today/EPS expected in one year (next four quarters) aka the “forward P/E ratio”
or “Trailing P/E ratio” aka EPS in the past year (last four quarters”

Question 2

PEG ratio

Answer 2

PEG= (stock price or value today/Expected EPS)/[Growth rate(100 x expected growth rate)]

Question 3

Valuing equity with the PEG ratio

Answer 3

Stock price = PEG x E x G

Question 4

Price to sales ratio (P/S ratio)

Answer 4

Price to sales ratio = stock price or value today/(Expected sales in one year)

Question 5

Valuing equity with the price to sales ratio

Answer 5

= (stock price or value today/expected sales in one year) aka industry avg. x target cos.

Question 6

Price to Cash Flow ratio (P/CF)

Answer 6

= stock price or value today/expected cash flow in one year

Question 7

Valuing equity with the price to cash flow ratio

Answer 7

= (stock price or value today/expected cash flow) aka industry avg. X CF (target CF per square)

Question 8

Price to book ratio (P/B)

Answer 8

= stock price or value/book value of common equity

Question 9

Valuing equity with price to book ratio

Answer 9

= stock price/ book value of common equity x book value target