Investment Valuation in India

Valuation Ratios help us value a company in the simplest manner. This method of valuing companies is also called Relative Valuation. A valuation ratio is a measure of how cheap or expensive a security (or business) is, compared to some measure of profit or value. A valuation ratio is calculated by dividing a measure of price by a measure of value, or vice-versa. The point of a valuation ratio is to compare the cost of a security (or a company, or a business) to the benefits of owning it. The most widely used valuation ratio is the PE ratio which compares the cost of a share to the profits made for shareholders per share. The EV/EBITDA compares price to profits, but in a somewhat more complex manner. It compares the cost of buying the businesses of a company free of debt, to profits. Because someone buying a company free of debt would no longer have to pay interest, the profit measure used changes to profit before interest. It is also adjusted for non-cash items. Price...

Earnings ratios Earnings Per Share = Income attributable to common shareholders / Weighted average number of common shares Cash Earnings Per Share = EDBIT / Weighted average number of shares issued Dividend Payout Ratio = Dividend / Net Income After Tax Profitability Ratios Return on Total assets = Net Income After Tax / Average Total Asset (This is an extremely important indicator as it would help the investor determine: Whether the company has earned a reasonable return on its sales, whether the company's assets have been effectively and efficiently used, and whether the cost of the company's borrowings are too high?) Return on Equity = Net Income After Tax-Dividend on preference shares / Average Shareholders Equity Pre Interest Return on Assets = Earning Before Interest and Tax / Average Total Asset Pre Interest After Tax Return on Assets = (Net Income After Tax + Interest Expense Net of Income Tax Saving )/ Average Total Assets Return on Total Invested Capital = Earnings Be...