Knowledge Center
Fundamental Glossary
Thirteen topics. Choose a topic, then open a subtopic for the full note. Search covers every term.
Valuation Ratios
Prices compared with earnings, book value, sales, cash flow, and dividends.
- P/E Ratio (Price-to-Earnings Ratio)The share price divided by earnings per share. It says how many rupees the market pays for one rupee of earnings.
- Forward P/E RatioPrice divided by the earnings analysts or the company expect over the next twelve months, or the next fiscal year.
- Trailing P/E Ratio (TTM)Price divided by earnings over the last twelve months, often called TTM for trailing twelve months.
- PEG RatioThe P/E ratio divided by the expected earnings growth rate. It asks whether the multiple is large relative to growth.
- P/B Ratio (Price-to-Book Ratio)Market price divided by book value per share. It compares the market value of equity with the accounting value of equity.
- P/S Ratio (Price-to-Sales Ratio)Market capitalization divided by revenue. It prices the company on sales when earnings are absent or not comparable.
- EV/EBITDA RatioEnterprise value divided by EBITDA. It compares the value of the whole firm with cash operating profit before depreciation.
- EV/EBIT RatioEnterprise value divided by EBIT, which is operating profit after depreciation and amortization.
- EV/Sales RatioEnterprise value divided by revenue. It prices the operating business, including debt, against sales.
- Price-to-Cash Flow RatioShare price divided by cash flow per share, usually operating cash flow.
- Price-to-Free Cash Flow RatioMarket capitalization divided by free cash flow, the cash left after the spending needed to maintain and grow the asset base.
- Dividend YieldThe annual dividend per share divided by the current share price, expressed as a percentage.
- Earnings YieldEarnings per share divided by price. It is the inverse of the P/E ratio.
- Book Value Per Share (BVPS)Shareholders' equity divided by the number of shares. It is the accounting residual behind each share.
- Intrinsic ValueAn estimate of what a business is worth based on the cash it can produce, rather than the price on the screen today.
- Margin of SafetyThe gap between estimated intrinsic value and the price you pay. It is the room for error in the estimate.
- Market CapitalizationThe market's value of the equity: share price times the number of shares.
- Enterprise Value (EV)The value of the core operations: equity value plus net debt and other claims, minus cash that is truly surplus.
- Replacement ValueWhat it would cost today to rebuild the company's assets and competitive position from scratch.
- Graham NumberA conservative screen from Benjamin Graham that combines earnings and book value into a ceiling price.
- Net Asset Value (NAV)Assets minus liabilities, per share or for the whole fund. In India it is the daily price of a mutual fund unit.