Stock Valuation: Relative Valuation & PEG Ratio

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10 Questions

Which of the following enterprise value multiples is the most commonly used?


What is the main reason EBITDA is used as a substitute for free cash flows in enterprise value calculations?

EBITDA is a flow to both equity and debt holders

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

Market value of common stock, preferred equity, debt, and minority interest, less cash and investments

How is EBITDA calculated according to the information provided?

EBITDA = recurring earnings from operations + interest + taxes + depreciation + amortization

Which enterprise value multiple is typically used for capital-intensive industries?

EV/Invested Capital

What is the formula for the justified trailing P/E ratio?

$\frac{P_o}{E_1} = \frac{(1-b)(1+g)}{r-g}$

What is the formula for the PEG ratio?


What is one advantage of the PEG ratio?

The PEG ratio standardizes the P/E ratio for stocks with different expected growth rates.

What is one disadvantage of the PEG ratio?

The PEG ratio is linear, making comparisons difficult.

When would enterprise value (EV) multiples be more appropriate to use than price multiples?

When assessing the valuation of a merger and acquisition.

Learn about relative valuation techniques such as price and enterprise value multiples, calculating P/E ratio with retention ratio, and understanding the PEG ratio. Explore how earnings growth and P/E ratio are related through the PEG ratio for stock valuation.

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