Work out dividend yield and alternative price multiples and explain what they mean
The idea
Alternative multiples follow the same pattern of price over a per-share measure. Price to book divides price by book value per share, where book value is total equity less preferred equity, divided by common shares outstanding. Price to sales divides price by sales per share. Price to cash flow uses a cash measure such as earnings plus non-cash charges, cash flow from operations or FCFE per share. Dividend yield is dividend per share divided by price; the trailing version uses the last four quarterly dividends or the last annual one, the leading version the forecast. Analysts often adjust book value, for example removing goodwill to get tangible book. The trap is including preferred equity in the book value attributable to common shareholders.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
Take the free diagnostic →More in Market-Based Valuation: Price and Enterprise Value Multiples
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