Question

Marketability Ratio

Answer 1

Marketability Ratio also known as Market value ratios. The market value ratios are important for investors, management, etc as these ratios are used to decide whether the valuation of the shares are overvalued, undervalued or at par with the market. The most common market value ratios are as follows:

Price/Earnings Ratio - Price-to-earnings ratio of a share (also called its P/E, or simply “multiple”) is the market price of that share divided by the annual earnings per share (EPS). The P/E ratio is a widely used valuation multiple used as a guide to the relative values of companies; a higher P/E ratio means that investors are paying more for each unit of current net income, so the stock is more “expensive” than one with a lower P/E ratio. The P/E ratio can be regarded as being expressed in years.

Earnings Per Share - This ratio shows the earnings of the company earned in a particular time period against the number of the company’s shares which are outstanding. This ratio is used to understand whether investing in it is worth the money or not.

Market/Book Ratio - The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. A higher P/B ratio implies that investors expect management to create more value from a given set of assets, all else equal.

Dividend Yield - Investors check both the price and dividend earnings from a share so, this ratio helps in measuring the amount of dividend distributed in a year against the number of shares outstanding. This gives an insight into the company’s earning and investors can decide whether they want to invest in the shares which pay a certain level of dividend against the current price of the share in the market.

Market Value Per Share - This is the ratio which is obtained by dividing the total market value of the shares of the company by the number of the shares which are outstanding. This gives the per share price in the market.