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.
The denominator for each ratio is the particular ratio’s namesake. For example, the price to earnings ratio is the entire market capitalization of the company divided by the most recent 12 months of earnings. Here is the actual Price to Earnings Ratio on 05/01/19 for Microsoft:
Microsoft’s P/E Ratio = Market Capitalization on 05/01/19 = $1,000,000,000,000 (1.0T) = 28.57
Past 12 Months of Earnings $35,000,000,000 (35.0B)
The Wall Street Journal has the trailing twelve months PE as 28.42 on 05/01/19.
The other two core valuation ratios are:
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