Price Earnings Ratio and Value Creation

Value creation is an in style theme. One of the first to try to formalize the theme was Tobin with his famous (q) or quotient between the market value of a company and their countable value, q = MV/CV. The market value is the value in stock of the shares of a company. The countable value is the value of the equity that appears in the balance, which is the money the shareholders have placed in a company. Obviously the shareholder wants this ratio to be worth more than one, which means that the value in the stock of his shares are more than the money he placed in the company.

Well, in this last section about PER and stock exchange; we will try to see what factors make the ratio (q) be higher or lower than one.

We will also look at the relation of the ratio (q) with the PER that we have been looking over now. We will also go over part of the fundamental equations we have already seen.