Ratio analysis is generally presented as something that has to be calculated after completing other financial statements and is generally viewed, particularly by students, as busy-work with little value. This paper changes the context of ratio analysis in order to demonstrate how a focus on the information provided by ratios adds to the value of the firm. By dissecting the valuation of a publicly traded firm using a price to earnings ratio multiplier, value generating factors in the form of ratios, can be inferred for smaller nonpublicly traded ventures.
Copyright © 2011 Academy of Entrepreneurial Finance, Inc.. This article first appeared in The Journal of Entrepreneurial Finance 15, no. 2 (Winter 2011): 23-28.
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Arnold, Tom. "Putting Ratios into a Firm Value Context for Entrepreneurs and Entrepreneurship Students." The Journal of Entrepreneurial Finance 15, no. 2 (Winter 2011): 23-28.