An easy guide to investment valuation ratios
Financial news coverage can be a dizzying array of information, which flies past before you can even grasp the significance. The world of finance is filled with complicated-sounding ratios and grandeur terms, which leaves you awestruck and puzzled at the same time. Investment valuation ratios are no exception (there are plenty of them) as each has a distinct calculation method, applicability, and interpretation.
In the following article, I’ll explain the definition of investment valuation ratios and their significance. We will cover each valuation ratio along with their calculations; thus, you can gain essential insight into the company you want to invest in.
What is investment valuation?
Valuation is a quantitative process that determines the fair value of an asset or a firm. A company can be evaluated on an absolute basis on its own or a relative basis by comparing it to competitors. There are several methods and techniques to arrive at a valuation value and the most commonly used among them are ratios.
Investment valuation ratios highlight the relationship of a company or its equity’s market value with some fundamental financial metrics, such as earnings. Valuation ratios show the price you pay for some financial metrics such as earning streams, cash flow, and revenues.
