Valuation ratios are the only group of business ratios that are externally and not internally driven. The market dictates valuation ratios. All three core valuation ratios are determined by the market price of the stock. All three have the same numerator, the market share price or market capitalization value of the company.
Price to Earnings Ratio
The price to earnings ratio is an analysis tool used by buyers and sellers of stock. It equates the current price for a single share of stock against the prior four quarters of earnings for that single share.