Multiplier Models – Price Multiple Model

i. explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables.

j. calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value.

Terms covered: Justified P/E, Sustainable growth rate, Dividend payout ratio, P/E ratio

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