A Note on a Framework for Valuation Ratios Based on Fundamentals
Posted: 31 Mar 2020
Date Written: February 25, 2020
Valuation ratios divide stock price by accounting metrics such as earnings, earnings growth and book value. This study adapts the general valuation framework in Ohlson and Juettner-Nauroth (2005) and Ohlson (2005) to present a unified approach for developing valuation ratios based on fundamentals, referred to as fundamental valuation ratios. One starts with a valuation model that is driven by an accounting metric a and its abnormal growth, then divides the valuation model by a to get a fundamental valuation ratio. For any valuation ratio, one can find a corresponding fundamental valuation ratio, as long as the valuation model is based on the same metric a as the valuation ratio denominator.
Keywords: Fundamentals, Growth, Ratios, Valuation
JEL Classification: G12, G14, M40, M41
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