Stock Valuation: P/E Ratio and PEG Ratio Calculations

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10 Questions

What does the PEG ratio capture?

The relationship between earnings growth and P/E ratio

How is the PEG ratio interpreted?

P/E per unit of expected growth

What advantage does the PEG ratio offer in valuation?

It standardizes the P/E ratio for stocks with different expected growth rates

Why can comparisons using the PEG ratio be difficult?

The relationship between P/E and growth is not linear

When are enterprise value multiples considered more appropriate to use?

When analyzing mergers and acquisitions

What is the most commonly used enterprise value multiple?

EV/EBITDA

What does the EV/EBITDA multiple measure?

The proportion of enterprise value to operating cash flow

Which component is included in the calculation of enterprise value (EV)?

Market value of common stock

What is EBITDA calculated as?

EBIT + depreciation + amortization

Which enterprise value multiple is recommended for capital-intensive industries?

EV/Invested Capital

This quiz covers the calculation of Price-to-Earnings (P/E) ratio using retention and growth rates, as well as the concept of Price/Earnings-to-Growth (PEG) ratio. Explore the relationship between earnings growth and valuation multiples.

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