CHAPTER 5

Traditional Valuation Methods

Technical Indicator Wisdom 5

Next step is to find support and resistance levels.

Five Basic Ratios

While there are many ratios that can be used to value a stock, the following four sets are the most used in analysis to determine the fair value of a stock.

Ratio 1: The Price-to-Book Ratio (P:B)

The simple explanation of this ratio is to take the breakup value of the company (valued per share) and compare it to the share price.

You find that corporate raiders often use this ratio to determine whether a hostile takeover is worthwhile. In addition, these analysts would revalue the equipment, buildings, land, and machinery to determine a fair value for the company. So, if the recalculated value is $100 million ...

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