The Price/Earnings Ratio (PER) approach

Having settled on an expected profits figure one approach is to determine the earnings per share and apply a suitable Price/Earnings Ratio (PER) to give a value per share. This is the most common methodology to value a minority holding in a profitable trading company.

More rarely, a value for the whole company can be found by applying a PER to the maintainable earnings figure. However, where a total company value needs to be calculated to derive a per share value, it will be more common to calculate the total company value on the basis of an EBITDA multiple (see below).

The formula applied is:

Earnings per share x PER = Value per share

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