Market Ratios

Market ratios combine financial statement data with market prices to express what investors are paying for each unit of earnings, book value, or cash flow. They are the most visible metrics in financial media, the Nifty 50 P/E ratio is published daily and watched by millions.

But widely watched doesn't mean well understood. A P/E ratio is meaningless without context: is this high-growth or mature? Are earnings cyclically depressed or at a peak? Is the E "clean" or loaded with one-off items? A P/E of 20× for a growing company with sustainable earnings is very different from the same multiple for a cyclical company at the top of the cycle.

Market ratios are most useful as initial screening tools to identify where to focus attention, not as standalone buy/sell signals.

Primary market ratios:

P/E (Price-to-Earnings) P/E = Market Price ÷ Earnings Per Share Trailing P/E uses last 12 months EPS. Forward P/E uses consensus next-12-months EPS estimate. PEG Ratio = P/E ÷ EPS Growth Rate, adjusts for growth. PEG < 1.0× often considered attractive.

EV/EBITDA EV = Market Cap + Net Debt + Minority Interest − Associate Value EV/EBITDA = EV ÷ EBITDA Capital-structure neutral. Common for M&A and cross-company comparison.

P/B (Price-to-Book) P/B = Market Cap ÷ Net Worth Below 1.0× suggests market values the company below liquidation value, either a deep value opportunity or a structural problem.

Dividend Yield Dividend Yield = DPS ÷ Market Price Useful for income investors. High yield can signal either generous capital return or market pricing in business distress.

EPS (Earnings Per Share) EPS = (PAT − Preference Dividends) ÷ Weighted Average Diluted Shares Diluted EPS includes shares that would be issued on exercise of options and convertibles.