Valuing Stocks Using Ratios and Multiples

There are many ways to value equities and each method has its own unique set of pros and cons

Morningstar.co.uk Editors 20 February, 2013 | 10:05AM

This article is part of Morningstar.co.uk's Equity Investing Week.

The most common equity valuation approach involves examining ratios between an equity's market price and an element of the underlying company's performance, whether that be earnings, sales, book value, or something similar. Ratios are very popular with investors because they can be calculated easily, and they are readily available from most financial websites and newspapers.

While valuation ratios have become ubiquitous, it's important to recognise their strengths and weaknesses Valuation ratios are handy tools to have at your disposal for a quick-and-dirty analysis, but they all require a lot of context to be useful.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Coca-Cola Co50.83 USD0.55

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Morningstar.co.uk Editors  analyse and report on shares, funds, market developments and good investing practice for individual investors and their advisers in the UK.

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