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Stock Valuation: P/E Ratio and PEG Ratio Calculations

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Stock Valuation: P/E Ratio and PEG Ratio Calculations

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Questions and Answers

What does the PEG ratio capture?

The relationship between earnings growth and P/E ratio (correct)

The relationship between earnings growth and EV

The relationship between earnings growth and retention ratio

The relationship between earnings growth and enterprise value multiples

How is the PEG ratio interpreted?

Price per unit of expected earnings

Retained earnings per unit of expected growth

P/E per unit of expected risk

P/E per unit of expected growth (correct)

What advantage does the PEG ratio offer in valuation?

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

It standardizes the P/E ratio for stocks with different risk profiles

It compares risk across different industries

It accounts for the duration of high-growth periods in multistage valuation models

Why can comparisons using the PEG ratio be difficult?

The relationship between P/E and growth is not linear Signup and view all the answers

When are enterprise value multiples considered more appropriate to use?

When analyzing mergers and acquisitions Signup and view all the answers

What is the most commonly used enterprise value multiple?

EV/EBITDA Signup and view all the answers

What does the EV/EBITDA multiple measure?

The proportion of enterprise value to operating cash flow Signup and view all the answers

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

Market value of common stock Signup and view all the answers

What is EBITDA calculated as?

EBIT + depreciation + amortization Signup and view all the answers

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

EV/Invested Capital Signup and view all the answers