Valuation Ratios
Chapters in this video
- 0:00 Why ratios need peer comparison to survive
- 0:57 Building the P/E ratio: price divided by EPS
- 1:51 The negative earnings trap on P/E
- 3:00 Price-to-book and hard asset accounting value
- 4:35 When P/B below 1.0 means bargain or distress
- 5:43 Choosing P/E or P/B for the right industry
- 6:44 Rapid-fire exam recap
What this video covers
- How the price-to-earnings (P/E) ratio is calculated and why it measures what investors will pay for each dollar of earnings per share (EPS)
- Why P/E is meaningless when a company has negative earnings, and how the exam uses negative earnings as a trap
- What a high or low P/E actually signals about growth expectations versus overvaluation or undervaluation
- How the price-to-book (P/B) ratio compares market value to accounting book value, and why book value is based on historical cost
- Why P/B below 1.0 could mean bargain or distress, and why context from peer comparison is required
- Which industries suit P/B well (asset-heavy and financial companies) and which make P/B useless (intangible-heavy technology and services)
- Why every valuation ratio must be compared to industry peers or historical averages, never evaluated in isolation
Read the full lesson, free
This video's complete written lesson is free to read in the CertFuel app, no signup wall. The complete Series 65 course also includes adaptive practice questions and spaced-repetition flashcards, free through December 31, 2026.