Market Value Ratios

Have you ever wanted to know how much is your business worth ?

Market value ratios are used to assess the value of a company. These ratios can be used by external users such as financial analysts and investors as well as internal users such as the business owners themselves. When deciding to sell your business, market value ratio analysis will help in evaluating the overall value of your business and in determining a good selling price for your business. In this category of ratios, comparisons are made with the dividend paid, shareholders equity, number of shares issued, price per share and the net profit.

The three most commonly used market value ratios are the book value per share ratio, dividend yield ratio, and price per earnings ratio.

Book Value Per Share Ratio = [Shareholders Equity – Preference Share Equity] / Number of Common Shares Issued

The book value per share ratio indicates what the value of each common or ordinary share is worth based on the numbers reported in the business’s financial statements. This is a useful starting point in determining the value of your company when you are deciding to sell your business.

Dividend Per Share Ratio = Dividends Declared / Number of Common Shares Issued

Dividend Yield Ratio = Dividend Per Share / Price Per Common Share

The dividend yield ratio measures the value of a company’s dividend relative to the share price. When a company pays out a dividend, the value of dividends per single share owned is known as the dividend per share.

Earnings Per Share Ratio = [Net Profit – Preference Share Dividends] / Number of Common Shares Issued

Price Per Earnings Ratio = Share Price / Earnings Per Share

The price per earnings ratio is an indicator that measures how valuable a company is relative to its net profit. A company with a higher price/earnings ration will be perceived to be valuable in the eyes of a potential investor.