Valuation Foundations

The Price-to-Earnings (P/E) ratio measures a company's current share price relative to its per-share earnings, showing what the market is willing to pay for each dollar of profit.

Forward P/E is a valuation metric that divides a company's current stock price by its estimated earnings per share for the next twelve months, reflecting future expectations.

The Price/Earnings-to-Growth (PEG) ratio adjusts the P/E ratio by dividing it by the company's earnings growth rate, helping identify growth stocks at reasonable prices.

The Price-to-Book (P/B) ratio compares a company's market capitalization to its book value, showing the multiple paid for the net assets on the balance sheet.

Discounted Cash Flow (DCF) is a valuation method that estimates an asset's value based on its projected future free cash flows, discounted to their present value.

Comparable Multiples (or relative valuation) estimates a company's value by comparing its financial multiples (like P/E or EV/EBITDA) to those of similar peer companies.

Intrinsic Value is the true, calculated worth of an asset based on its underlying fundamentals, independent of its current market price.

Margin of Safety is the difference between an asset's intrinsic value and its market price, providing a buffer against estimation errors and market declines.