For the purposes of valuing a potential acquisition, however, the basic market-value method involves the study of a range of related companies, ideally at a similar stage in the growth cycle and in the same industry or sector, to determine a range of price-to-earnings (P/E) ratios for comparable
When employing the multiple method, analysts gather performance measures of the firm. A popular measure is earnings or net income. They multiply these performance measures with multiples. The appropriate multiple for a firm’s earnings is the price–earnings ratio, or P/E. The multiples are obtained
By Jos van Bommel
As an example, consider that the price of a stock is the product of the earnings per share (EPS) and the stock’s price/earnings multiple (P/E). When commodity firms have not hedged their output in the futures market, the profits of a firm (i.e. EPS) will be highly correlated with the prices
By Keith Black, Satya Kumar
It is then that the shares can be sold via an IPO at prices that result in high multiples of the most commonly used financial ratios, such as price/earnings ratio (P/E), or price/book value ratio (P
By Janusz Brzeszczynski
Definitions of ’P/E multiple’ and meaning of ’P/E multiple’ are from the book publication, QFINANCE – The Ultimate Resource, © 2009 Bloomsbury Information Ltd. Find definitions for ’P/E multiple’ and other financial terms with our online QFINANCE Financial Dictionary.