A valuation ratio formula measures the relationship between the market value of a company or its equity and some fundamental financial metric (e.g., earnings). The point of a valuation analyis is to show the price you are paying for some stream of earnings, revenue, or cash flow (or other financial metric).
What are financial ratios & valuation?
Financial ratios are relationships based on a company's financial information and they can serve as useful tools to evaluate a company's investment potential. Valuation is the financial process of determining what a company is worth.
What is a principle valuation ratio?
Here is a list of principle valuation ratios. Price-to-earnings ratio (P/E) looks at the relationship between a company's stock price and its earnings. The P/E ratio gives investors an idea of what the market is willing to pay for the company's earnings. The ratio is determined by dividing a company's current share price by its earnings per share.
