Market value ratios

Definition

Market value ratios are financial metrics that evaluate the economic status of a company as perceived by investors. They help determine if a company's stock is overvalued, undervalued, or fairly priced in the market.

5 Must Know Facts For Your Next Test

1. Price-to-Earnings (P/E) ratio measures the current share price relative to its per-share earnings.
2. Market-to-Book (M/B) ratio compares the market value of a company's stock to its book value per share.
3. Price/Earnings to Growth (PEG) ratio adjusts the P/E ratio by incorporating growth rates in earnings.
4. Market value ratios are crucial for investors to make informed decisions about buying or selling stocks.
5. A high P/E ratio may indicate that a stock is overvalued, while a low P/E might suggest it is undervalued.

Review Questions

• What does the Price-to-Earnings (P/E) ratio measure?
• How does the Market-to-Book (M/B) ratio assist investors?
• Why might an investor consider using the PEG ratio?

Related terms

Earnings per Share (EPS): A metric indicating a company's profitability, calculated as net income divided by outstanding shares.

Dividend Yield: A financial ratio showing how much a company pays out in dividends each year relative to its stock price.

Book Value: The net asset value of a company calculated as total assets minus intangible assets and liabilities.