Stock Valuation Measures Explained
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Ever wonder what a P/E Ratio was? Here I will explain a few common stock valuation tools.
P/E Ratio - The Price to Earnings Ratio. This shows you what multiple the security is trading at compared to it’s earnings. If a company XYZ has $50 Million shares Outstanding and nets $200 million the company has an Earnings Per Share of $4. If the XYZ’s stock is worth $60 the company is trading at a P/E of 15. $60/$4=15. This would also be known as the Trailing P/E.
Future P/E - This is calculated the same way as the P/E or Trailing P/E ratio but it is determined by the Analysts estimates on future earnings per share.
PEG Ratio - PEG is an acronym for Price Earnings Growth. It is calculated by dividing the P/E by the annual growth percentage. If XYZ which has a P/E of 15 is growing at a 11% clip then it’s PEG is is 1.36. The lower the number the cheaper the stock.
Enterprise Value - EV to put it simply it is pretty much the takeover price, it’s what someone would have to pay to buy the company. It is the total of a companies Market Cap + Debt, Minority interest, and preferred shares.
EBITA - Earnings before interest, taxes, depreciation and amortization. This is used to determine a companies profitability. You subtract operating expenses from the companies revenue and then add in any other revenue. It is used as an indication as to if a company has the earning power to continue to pay off it’s debts
EV/EBITA - or Enterprise Multiple is the EV divided by the EBITA. The lower the multiple the cheaper the price. But sometimes stocks are cheap for a reason.
A good place I go to for a brief overview of a company is Yahoo! Finance but if you want exact numbers you’re going to have to do your own homework.
That’s it for today. Happy Investing
[...] may not know much about Stocks, Dividends, or how the Market works. I covered some basics such as Stock valuation Measures and Dividend growth. I may go back to this a hold a series from the ground up on everything that an [...]