Answered step by step
Verified Expert Solution
Question
1 Approved Answer
7. 6: Analysis of Financial Statements: Market Value Ratios Market value ratios give management an indication of what investors think of the company's -Select- and
7. 6: Analysis of Financial Statements: Market Value Ratios Market value ratios give management an indication of what investors think of the company's -Select- and future prospects. The market value ratios include: (1) Price/Earnings ratio, (2) Market/Book ratio, and (3) Enterprise Value/EBITDA ratio. The Price/Earnings (P/E) ratio shows how much investors are willing to pay per dollar of current -Select- Its equation is: Price/Earnings (P/E) ratio = Price per share Earnings per share -Select- for slowly growing and risky firms. The Market/Book (M/B) ratio is another P/E ratios are -Select- for firms with strong growth prospects and relatively little risk but indication of how investors regard a firm. Its equation is: Market/Book (M/B) ratio Market price per share Book value per share I Companies with -Select- risk and -Select-growth have high M/B ratios. M/B ratios typically exceed -Select- which means that investors are willing to pay more for stocks than their accounting book values. Unlike the P/E and M/B ratios, the EV/EBITDA ratio looks at the relative market value of all the company's key financial claims. The EV/EBITDA ratio -Select- heavily influenced by the company's debt and tax situations. Enterprise value = Market value of equity + Market value of total debt + Market value of other financial claims - Cash and equivalents
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started