Market test or Valuation ratio | Explanation | Formula

Market test or Valuation Ratios

The followings are the market test or valuation ratios.

  1. Dividend Yield Ratio.
  2. Dividend Payout Ratio or Payout Ratio.
  3. Price Earning Ratio or P/E Ratio (Earnings Yield Ratio).
  4. Market value to Book Value Ratio.

Dividend Yield Ratio

This ratio is calculated to know the relationship prevailing between dividend per share issued by the company and the market value of the share of the respective company.

Dividend Yield Ratio Formula

The formula to find dividend yield ratio is as follows

Dividend Yield Ratio = Dividend per Equity Share / Market Value per Share

Dividend per Equity Share = Dividend Paid to Equity Shareholders / Number of Equity Shares

2. Dividend Payout Ratio or Payout Ratio

This ratio is calculated to find out the extend of profits retained within the business concern. A portion of profits earned retained within the business is called ploughing back of profits. Such profits helps the company for growth and pay more dividends in future.

Dividend Payout Ratio formula

The formula to find out dividend payout ratio is as follows.

Dividend Payout Ratio = Dividend per Equity Share / Earnings Per Share

3. Price Earning Ratio or P/E Ratio (Earnings Yield Ratio)

This ratio discloses the relationship prevailing between market price per equity share and earnings per share. Generally, this ratio is calculated by the prospective investors to find the appreciation in the market value of shares and decide whether or not to buy the shares in a particular company.

Formula to find P/E Ratio

Price earning ratio is calculated with the help of following formula.

Price Earnings Ratio = Market Price per Equity Share / Earnings Per Share

Earnings Yield Ratio = Earnings per Share  / Market Price Per Share x 100

4. Market Value to Book Value Ratio

This ratio is calculated to find out the relationship prevailing between market value per share and book value per share. This ratio is calculated by the following formula.

Formula to find Market value to Book value ratio

The following formula can be used to find market value to book value ratio

Market value to Book Value Ratio = Market value per Share / Book Value per Share

Book Value per Share =  (Equity Share Capital+ Reserves and Surpluses – Accumulated Losses) / Number of Equity Shares

Leave a Reply

Recent Posts





Related pages


advantages and disadvantages of skimming pricingcheck demeritsforeign exchange quotationsadvantages and disadvantages of mixed market economydifference between transactional marketing and relationship marketingmarginal costing and decision makingprocess costing disadvantagespricing decisions definitionconcept of capital rationingsampling quotamerchant banking meaningwhat is sundry assetsrandom and nonrandom sampling methodsadvantages of accidental samplingultra vires legal definitionshort preciscapital budgeting advantages and disadvantagesmeaning of profitability ratiorandom sampling disadvantagesicici bank functionsnpa non performing assetsadvantages of fdicost of material consumed formuladisadvantages of being a franchiseimportance of underwritingwhat is dumping in international businesssundries in accountingdistinguish between a condition and a warrantyspeculative transactionscalculation of creditor daysdishonour meaningdefine sinking funddisadvantages of mixed economyprecis formatwhats imfbudgeting methods in advertisingdiscuss the merits and demeritsmeaning of hire purchasewhat is a sinking fund provisionmarginal costing methodbenefits of abc costingsocialism definitionstypes of dumping in international tradehow to dissolve a partnershipwagering contract exampledematerialisation of shares pptexplain sales forecastingmeaning of debenturebudgetary control in accountingtypes of cooperatives societiesdisadvantage of a sole traderformula for average collection periodtypes of activity based costingdebenture meanswhat demoted meanvoidable contractadvantages of small scale farmingdegree of total leverage calculatorcustomer departmentalization definitionfob cif meaningadvantages and disadvantages of market penetrationaccount receivable collection periodadvantages and disadvantages of sales promotion pdfmerchant banking definitionarguments for and against nationalisationexplain cluster samplingdefine exim bankmeaning of subrogation in hindidefine urbanizedhow to prepare a flexible budgetfinding payback periodfeatures of securitizationoverheads definition businessstencil duplicating machinewcr working capitaldifference between trade and commerce wikipediasebi roleprofitability ratios meaningfunctions of unctad