Market-Based Valuation: Price and Enterprise Value Multiples

Free CFA Level II lesson in Equity Valuation. 13 min read, ~2,006 words.

Justified leading P/E = (1-b)/(r-g); the trailing version adds (1+g) to the numerator. Three drivers shape the justified P/E: payout, required return, and growth. Justified P/B = (ROE-g)/(r-g); above 1.0 signals value creation, below 1.0 signals value destruction. P/B = P/E x ROE, so any one of the three follows...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Check Your Understanding
• Exam Shortcuts

Learning objectives

• market based valuation

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