Abstract

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.

Document Type

Article

Publication Date

Winter 2011

Publisher Statement

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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