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Valuation, or market value, ratios are used to determine the value of a stock or security when compared to a certain measure like profits or enterprise value. In this section, we cover the most important valuation ratios you need to know.

What are valuation ratios?

Valuation ratios, sometimes called market value ratios, are measurements of how appropriately shares in a company are valued and what type of return an investor may get. By calculating the market value a potential investor can see if the shares are overvalued, undervalued, or at a fair price. It also helps determine how much a potential investor should buy.

There are several different valuation ratio calculations that can be done to find the market value of a company or stock. Understanding how each ratio works can give you a better evaluation of a company’s financial health.

List of valuation ratios

Below is the complete list of valuation ratios we have covered. Each will provide a detailed overview of the ratio, what it’s used for, and why.

They also explain the formula behind the ratio and provide examples and analysis to help you understand them.

More financial ratios

 

FAQs

1. What are valuation ratios?

Valuation ratios, or market value ratios, are measurements of how appropriately shares in a company are valued and what type of return an investor may get. By calculating the market value, a potential investor can see if the shares are overvalued, undervalued, or at a fair price. It also helps determine how much a potential investor should buy.

2. How is the valuation ratio calculated?

Each valuation ratio is calculated differently, but all use various measures of a company’s stock value to come up with a ratio. Most ratios use the price of a share, earnings, or assets to determine a fair market value.

3. What do valuation ratios tell you?

Valuation ratios tell you how the market values a company’s stock in comparison to its earnings, assets, or other measures. This can help you determine if a stock is overvalued, undervalued, or at a fair price.

4. Which valuation ratio is better, high or low?

There is no definitive answer as to which valuation ratio is better. It depends on the company and what you are trying to measure. Some ratios are more indicative of a healthy company than others.

5. What are the most well-known valuation ratios?

There are several different valuation ratios that are well-known and used by investors. Some of the most commonly used ratios are the price-to-earnings ratio, dividend yield, and free cash flow to equity.

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