# Stock Valuation: Relative Valuation & PEG Ratio

EnhancedNarcissus
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## 10 Questions

EV/EBITDA

### 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?

$\frac{P/E}{g}$

### 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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