Business, 19.02.2020 03:29 jayleengrant

Market value ratios give management an indication of what investors think of the company's -Select-liquidityriskassetsItem 1 and future prospects. The market value ratios include: (1) Price/Earnings ratio, (2) Market/Book ratio, and (3) Enterprise Value/EBITDA ratio. The Price/Earnings (P/E) ratio shows how much investors are willing to pay per dollar of current -Select- 2 . Its equation is:

P/E ratios are -Select-highlowItem 3 for firms with strong growth prospects and relatively little risk but -Select-highlowItem 4 for slowly growing and risky firms. The Market/Book (M/B) ratio is another indication of how investors regard a firm. Its equation is: Companies with -Select-highlowItem 5 risk and -Select-highlowItem 6 growth have high M/B ratios. M/B ratios typically exceed -Select-onezerotenItem 7 , which means that investors are willing to pay more for stocks than their accounting book values. Unlike the P/E and M/B ratios, the EV/EBITDA ratio looks at the relative market value of all the company’s key financial claims. The EV/EBITDA ratio -Select-isis notItem 8 heavily influenced by the company’s debt and tax situations.
Enterprise value = Market value of equity + Market value of total debt + Market value of other financial claims – Cash and equivalents.

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