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SnapFi

Equity Valuation

33 formulas

Equity valuation formulas price individual stocks using price-to-earnings (P/E) ratios, expected earnings growth, dividend discount models, book-value and enterprise multiples, and discounted cash flow. They answer questions like "what entry P/E justifies my target return?", "what is the most I should pay for this stock today?", and "what IRR will I realize at exit?" — the building blocks of fundamentals-driven equity investing.

P/E & Earnings

Entry P/E Ratio

Calculates the maximum P/E ratio to pay today so that compounding earnings growth, sold at an assumed exit P/E, delivers the required rate of return — with an optional margin of safety discount.

EntryPE=ExitPE×(1+g)n(1+r)n×(1−MOS)\text{EntryPE} = \text{ExitPE} \times \frac{(1 + g)^n}{(1 + r)^n} \times (1 - \text{MOS})

Showing without dividends

2 formula options

Maximum Stock Price

Calculates the maximum price per share to pay today by projecting current EPS forward at the growth rate, applying the exit P/E, and discounting back at the required return — with an optional margin of safety discount.

P0=E0(1+g)n×ExitPE(1+r)n×(1−MOS)P_0 = \frac{E_0 (1+g)^n \times \text{ExitPE}}{(1+r)^n} \times (1 - \text{MOS})

Showing without dividends

2 formula options

Projected EPS from Revenue

Builds future earnings per share from the top down: compound revenue forward at a growth rate, apply an expected net profit margin to get net income, then divide by a share count that shrinks with buybacks or expands with dilution.

EPSn=Rev0(1+grev)n×NetMarginShares(1+s)n\text{EPS}_n = \frac{\text{Rev}_0(1+g_{\text{rev}})^n \times \text{NetMargin}}{\text{Shares}(1+s)^n}

Fair Buy Price (Revenue Projection)

Full top-down stock valuation: project revenue, margin, and share count forward to a year-n EPS, apply an exit P/E to get a future share price, discount that price back at your required return, and optionally cut it by a margin of safety.

Pbuy=Rev0(1+grev)n×NetMargin×ExitPEShares(1+s)n(1+r)n×(1−MOS)P_{\text{buy}} = \frac{\text{Rev}_0(1+g_{\text{rev}})^n \times \text{NetMargin} \times \text{ExitPE}}{\text{Shares}(1+s)^n (1+r)^n} \times (1 - \text{MOS})

Expected Annual Return (Revenue Projection)

The inverse of the fair buy price: given what the stock costs today, the annualized return implied by projected revenue, net margin, share count, and an exit P/E multiple.

ExpRet=[Rev0(1+grev)n×NetMargin×ExitPEShares(1+s)n×Pmkt]1/n−1\text{ExpRet} = \left[\frac{\text{Rev}_0(1+g_{\text{rev}})^n \times \text{NetMargin} \times \text{ExitPE}}{\text{Shares}(1+s)^n \times P_{\text{mkt}}}\right]^{1/n} - 1

Earnings Yield

Inverse of the P/E ratio: trailing or forward EPS divided by current price. Expresses earnings as a yield, directly comparable to bond yields and Treasury rates.

Earnings Yield=EPSP\text{Earnings Yield} = \frac{\text{EPS}}{P}

PEG Ratio

P/E divided by expected earnings growth rate (in percentage points). Peter Lynch's heuristic for whether a stock's P/E is justified by its growth profile: PEG ≈ 1 is fair, < 1 is cheap, > 1 is expensive.

PEG=P/EGrowth Rate (%)\text{PEG} = \frac{\text{P/E}}{\text{Growth Rate (\%)}}

PEGY Ratio

PEG variant that includes the dividend yield in the denominator, giving credit for income that growth-only PEG ignores. Better suited for high-yield, lower-growth names.

PEGY=P/EGrowth (%)+Dividend Yield (%)\text{PEGY} = \frac{\text{P/E}}{\text{Growth (\%)} + \text{Dividend Yield (\%)}}

Implied Growth Rate

Backs the Entry P/E formula out of the unknown growth rate: given a market P/E, exit P/E assumption, required return, and holding period, what EPS growth rate is the market pricing in?

ImpliedG=[P/E×(1+r)nExitPE]1/n−1\text{ImpliedG} = \left[ \frac{P/E \times (1 + r)^n}{\text{ExitPE}} \right]^{1/n} - 1

Implied Required Return

Inverts the Entry P/E formula to solve for the required return: given the market P/E, an exit P/E assumption, an expected growth rate, and a holding period, what return does the price imply if all assumptions are met?

ImpliedR=[(1+g)n×ExitPEP/E]1/n−1\text{ImpliedR} = \left[ \frac{(1 + g)^n \times \text{ExitPE}}{P/E} \right]^{1/n} - 1

Showing without dividends

2 formula options

Dividend Discount Models

Gordon Growth Model

Constant-growth dividend discount model: present value of an infinite stream of dividends growing at a constant rate g, discounted at required return r. The foundational dividend-based valuation formula.

V0=D1r−gV_0 = \frac{D_1}{r - g}

No-Growth DDM (Preferred Stock)

Special case of the dividend discount model with zero growth: a perpetual fixed dividend discounted at the required return. The right framework for preferred stock and any fixed-perpetuity income stream.

V0=D0rV_0 = \frac{D_0}{r}

Two-Stage DDM

Dividend discount model with two distinct growth stages: a high-growth period of n₁ years followed by a perpetual terminal-growth stage. Combines explicit-projection PV with a Gordon-style terminal value.

V0=∑t=1n1D0(1+g1)t(1+r)t+D0(1+g1)n1(1+g2)(r−g2)(1+r)n1V_0 = \sum_{t=1}^{n_1} \frac{D_0(1+g_1)^t}{(1+r)^t} + \frac{D_0(1+g_1)^{n_1}(1+g_2)}{(r-g_2)(1+r)^{n_1}}

Sustainable Growth Rate

A simple retained-earnings growth estimate: ROE multiplied by the earnings retention ratio (1 − payout). It assumes stable profitability and financing policies.

g=ROE×(1−Payout)g = \text{ROE} \times (1 - \text{Payout})

Multiples & Book Value

Price-to-Book (P/B)

Stock price divided by book value per share. Compares market value of equity to its accounting book value — a classic Graham-style value metric, especially useful for asset-heavy businesses.

P/B=PBVPS\text{P/B} = \frac{P}{\text{BVPS}}

Book Value per Share (BVPS)

Book common equity attributable to the relevant common shareholders divided by matching common shares outstanding.

BVPS=EquityShares Outstanding\text{BVPS} = \frac{\text{Equity}}{\text{Shares Outstanding}}

Graham Number

Benjamin Graham's intrinsic-value heuristic for defensive investors: the geometric mean of 22.5 times trailing EPS and book value per share. Encodes Graham's belief that P/E should not exceed 15 and P/B should not exceed 1.5 simultaneously.

GrahamNum=22.5×EPS×BVPS\text{GrahamNum} = \sqrt{22.5 \times \text{EPS} \times \text{BVPS}}

EV / EBITDA

Simplified enterprise value (market common equity plus interest-bearing debt minus cash) divided by EBITDA. This version assumes no material preferred equity, noncontrolling interest or other required enterprise-value adjustments.

EV/EBITDA=MarketCap+Debt−CashEBITDA\text{EV/EBITDA} = \frac{\text{MarketCap} + \text{Debt} - \text{Cash}}{\text{EBITDA}}

Free Cash Flow Yield

Free cash flow divided by market capitalization. The cash-yield equivalent of earnings yield — answering "what cash return does the equity throw off relative to its price?"

FCF Yield=FCFMarketCap\text{FCF Yield} = \frac{\text{FCF}}{\text{MarketCap}}

Enterprise Value

The value of the whole operating business to all capital providers: equity market capitalization plus interest-bearing debt minus cash. It is what an acquirer would pay to own the company free of its cash and debt, and the numerator of every EV multiple.

EV=MarketCap+Debt−CashEV = \text{MarketCap} + \text{Debt} - \text{Cash}

EV/EBIT

Enterprise value divided by operating income. Like EV/EBITDA but after depreciation, so it charges the business for the capital it consumes; the better multiple for asset-heavy companies.

EV/EBIT=MarketCap+Debt−CashEBIT\text{EV/EBIT} = \frac{\text{MarketCap} + \text{Debt} - \text{Cash}}{EBIT}

EV/Sales

Enterprise value divided by revenue. The multiple of last resort for companies with no earnings yet, and a useful cross-check when margins are temporarily depressed or inflated.

EV/Sales=MarketCap+Debt−CashRevenue\text{EV/Sales} = \frac{\text{MarketCap} + \text{Debt} - \text{Cash}}{\text{Revenue}}

Price-to-Sales (P/S)

Market capitalization divided by revenue: what investors pay per dollar of sales. Simple and hard to manipulate, but blind to margins and to debt.

P/S=MarketCapRevenue\text{P/S} = \frac{\text{MarketCap}}{\text{Revenue}}

Price-to-Free-Cash-Flow (P/FCF)

Market capitalization divided by free cash flow: years of current free cash flow the market price represents. The reciprocal of free cash flow yield.

P/FCF=MarketCapFCF\text{P/FCF} = \frac{\text{MarketCap}}{\text{FCF}}

Free Cash Flow per Share

Free cash flow divided by shares outstanding: the cash generated per share after capital spending. The cash counterpart of earnings per share.

FCF/Share=FCFShares\text{FCF/Share} = \frac{\text{FCF}}{\text{Shares}}

DCF & Total Return

Two-Stage DCF Valuation

Two-stage discounted cash flow: explicit FCF projection for n₁ years at growth rate g₁, then a Gordon-style terminal value at perpetual growth rate g₂. Discounts both stages at WACC (r) to today.

V0=∑t=1n1FCF0(1+g1)t(1+r)t+FCF0(1+g1)n1(1+g2)(r−g2)(1+r)n1V_0 = \sum_{t=1}^{n_1} \frac{\text{FCF}_0(1+g_1)^t}{(1+r)^t} + \frac{\text{FCF}_0(1+g_1)^{n_1}(1+g_2)}{(r-g_2)(1+r)^{n_1}}

Total Shareholder Return (TSR)

Annualized holding-period return with dividends accumulated as cash: terminal wealth is ending share price plus total cash dividends. This excludes dividend reinvestment and additional purchases or withdrawals.

TSR=(P1+DividendsP0)1/n−1\text{TSR} = \left( \frac{P_1 + \text{Dividends}}{P_0} \right)^{1/n} - 1

Buyback Yield

Dollars spent on share repurchases divided by market capitalization. The buyback equivalent of dividend yield — measures cash returned to shareholders via repurchases rather than dividends.

Buyback Yield=Buyback SpendMarket Cap\text{Buyback Yield} = \frac{\text{Buyback Spend}}{\text{Market Cap}}

Shareholder Yield

Sum of dividend yield, buyback yield, and debt-paydown yield. The complete picture of cash returned to shareholders — a more comprehensive successor to dividend yield as a yield-style equity screen.

Shareholder Yield=DivYield+BuybackYield+DebtPaydownYield\text{Shareholder Yield} = \text{DivYield} + \text{BuybackYield} + \text{DebtPaydownYield}

Free Cash Flow to Equity (FCFE)

Cash available to shareholders after operating needs, capital spending and net debt flows: operating cash flow less capital expenditures plus net borrowing. What the company could pay out without changing its financial position.

FCFE=CFO−CapEx+Net Borrowing\text{FCFE} = \text{CFO} - \text{CapEx} + \text{Net Borrowing}

Free Cash Flow to the Firm (FCFF)

Cash generated by operations for all capital providers, before any financing: operating cash flow plus after-tax interest (added back because CFO is after interest) minus capital expenditures.

FCFF=CFO+Interest×(1−t)−CapEx\text{FCFF} = \text{CFO} + \text{Interest} \times (1 - t) - \text{CapEx}

Owner Earnings

Warren Buffett's measure of the cash a business truly produces for its owners: reported net income plus depreciation and amortization, minus the capital spending needed just to maintain its competitive position.

Owner Earnings=Net Income+D&A−Maintenance CapEx\text{Owner Earnings} = \text{Net Income} + \text{D\&A} - \text{Maintenance CapEx}

Present Value of Growth Opportunities (PVGO)

The part of a share price that pays for future growth rather than current earnings: the price minus the value of earnings held flat forever (EPS divided by the required return). Negative PVGO means the market expects value-destroying reinvestment.

PVGO=P−EPSr\text{PVGO} = P - \frac{EPS}{r}