Common Stock Valuation Ratios (Price Multiples)

Difficulty level: Basic

Valuation ratios measure the quantity of an asset or flaw (e.g., earnings) associated with ownership of a specified claim (e.g., a share of ownership of the enterprise).


Current Valuation Ratios

McDonald's Corp., current price multiples

 
McDonald's Corp. Starbucks Corp. YUM! Brands Inc. Restaurants & Bars Consumer Services
Selected Financial Data
Current share price (P) $ 98.99
No. shares of common stock outstanding 958,514,890
Growth rate (g) 15.86%
 
Earnings per share (EPS) $ 4.96
Next year expected EPS $ 5.75
Operating profit per share $ 8.29
Sales per share $ 28.63
Book value per share (BVPS) $ 13.41
Ratios (Price Multiples)
Price to earnings (P/E) 19.94 37.35 37.66 26.88 26.59
Price to next year expected earnings 17.21 32.15 27.66 22.90 23.89
Price-earnings-growth (PEG) 1.26 2.31 1.04 1.55 2.36
Price to operating profit (P/OP) 11.94 25.07 25.42 16.82 15.47
Price to sales (P/S) 3.46 4.70 2.98 3.70 1.25
Price to book value (P/BV) 7.38 14.65 25.59 10.76 4.71

If company price multiple is lower then the price multiple of benchmark then company stock is relatively undervalued.

Otherwise, if company price multiple is higher then the price multiple of benchmark then company stock is relatively overvalued.

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Historical Valuation Ratios (Summary)

McDonald's Corp., historical price multiples

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Price to earnings (P/E) 19.19 17.10 17.64 18.57 15.70
Price to operating profit (P/OP) 11.48 10.90 11.20 11.98 10.39
Price to sales (P/S) 3.33 3.40 3.50 3.78 3.23
Price to book value (P/BV) 7.10 5.97 6.30 7.10 5.31
Ratio Description The company
P/E ratio The P/E ratio tells analyst how much an investor in common stock pays per dollar of current earnings. McDonald's Corp.'s P/E ratio declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.
P/OP ratio Because P/E ratio is calculated using net income, the ratio can be sensitive to nonrecurring earnings and capital structure, analysts may use price to operating profit. McDonald's Corp.'s P/OP ratio declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.
P/S ratio An rationale for the P/S ratio is that sales, as the top line in an income statement, are generally less subject to distortion or manipulation than other fundamentals such as EPS or book value. Sales are also more stable than earnings and never negative. McDonald's Corp.'s P/S ratio declined from 2012 to 2013 and from 2013 to 2014.
P/BV ratio The P/BV ratio is interpreted as an indicator of market judgment about the relationship between a company's required rate of return and its actual rate of return. McDonald's Corp.'s P/BV ratio declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.

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Price to Earnings (P/E)

McDonald's Corp., historical P/E calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
No. shares of common stock outstanding1 961,118,669 989,881,374 1,002,791,769 1,018,555,678 1,043,298,941
Selected Financial Data (USD $)
Net income (in thousands) 4,757,800  5,585,900  5,464,800  5,503,100  4,946,300 
Earnings per share (EPS)3 4.95 5.64 5.45 5.40 4.74
Share price1, 2 94.98 96.50 96.14 100.32 74.44
Ratio
P/E ratio4 19.19 17.10 17.64 18.57 15.70
Benchmarks
P/E Ratio, Competitors
Starbucks Corp. 28.27 7,312.64 26.20 25.14 24.20
YUM! Brands Inc. 31.34 29.73 18.22 22.86 20.48
P/E Ratio, Sector
Restaurants & Bars 23.19 28.22 19.15 20.29 17.63
P/E Ratio, Industry
Consumer Services 23.40 21.18 19.54 16.30 17.96

1 Data adjusted for splits and stock dividends.

2 Close price on the filing date of McDonald's Corp.'s Annual Report.

2014 Calculations

3 EPS = Net income ÷ No. shares of common stock outstanding
= 4,757,800,000 ÷ 961,118,669 = 4.95

4 P/E ratio = Share price ÷ EPS
= 94.98 ÷ 4.95 = 19.19

Ratio Description The company
P/E ratio The P/E ratio tells analyst how much an investor in common stock pays per dollar of current earnings. McDonald's Corp.'s P/E ratio declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.

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Price to Operating Profit (P/OP)

McDonald's Corp., historical P/OP calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
No. shares of common stock outstanding1 961,118,669 989,881,374 1,002,791,769 1,018,555,678 1,043,298,941
Selected Financial Data (USD $)
Operating income (in thousands) 7,949,200  8,764,300  8,604,600  8,529,700  7,473,100 
Operating profit per share3 8.27 8.85 8.58 8.37 7.16
Share price1, 2 94.98 96.50 96.14 100.32 74.44
Ratio
P/OP ratio4 11.48 10.90 11.20 11.98 10.39
Benchmarks
P/OP Ratio, Competitors
Starbucks Corp. 18.97 18.15 18.12 16.12
YUM! Brands Inc. 21.16 18.04 12.68 16.62 13.41
P/OP Ratio, Sector
Restaurants & Bars 14.51 18.43 12.54 13.56 11.66
P/OP Ratio, Industry
Consumer Services 13.62 13.52 11.54 9.89 10.64

1 Data adjusted for splits and stock dividends.

2 Close price on the filing date of McDonald's Corp.'s Annual Report.

2014 Calculations

3 Operating profit per share = Operating income ÷ No. shares of common stock outstanding
= 7,949,200,000 ÷ 961,118,669 = 8.27

4 P/OP ratio = Share price ÷ Operating profit per share
= 94.98 ÷ 8.27 = 11.48

Ratio Description The company
P/OP ratio Because P/E ratio is calculated using net income, the ratio can be sensitive to nonrecurring earnings and capital structure, analysts may use price to operating profit. McDonald's Corp.'s P/OP ratio declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.

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Price to Sales (P/S)

McDonald's Corp., historical P/S calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
No. shares of common stock outstanding1 961,118,669 989,881,374 1,002,791,769 1,018,555,678 1,043,298,941
Selected Financial Data (USD $)
Revenues (in thousands) 27,441,300  28,105,700  27,567,000  27,006,000  24,074,600 
Sales per share3 28.55 28.39 27.49 26.51 23.08
Share price1, 2 94.98 96.50 96.14 100.32 74.44
Ratio
P/S ratio4 3.33 3.40 3.50 3.78 3.23
Benchmarks
P/S Ratio, Competitors
Starbucks Corp. 3.55 4.08 2.73 2.68 2.14
YUM! Brands Inc. 2.48 2.48 2.13 2.39 2.09
P/S Ratio, Sector
Restaurants & Bars 3.20 3.36 2.97 3.19 2.69
P/S Ratio, Industry
Consumer Services 1.10 1.09 0.90 0.79 0.81

1 Data adjusted for splits and stock dividends.

2 Close price on the filing date of McDonald's Corp.'s Annual Report.

2014 Calculations

3 Sales per share = Revenues ÷ No. shares of common stock outstanding
= 27,441,300,000 ÷ 961,118,669 = 28.55

4 P/S ratio = Share price ÷ Sales per share
= 94.98 ÷ 28.55 = 3.33

Ratio Description The company
P/S ratio An rationale for the P/S ratio is that sales, as the top line in an income statement, are generally less subject to distortion or manipulation than other fundamentals such as EPS or book value. Sales are also more stable than earnings and never negative. McDonald's Corp.'s P/S ratio declined from 2012 to 2013 and from 2013 to 2014.

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Price to Book Value (P/BV)

McDonald's Corp., historical P/BV calculation, comparison to benchmarks

 
Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
No. shares of common stock outstanding1 961,118,669 989,881,374 1,002,791,769 1,018,555,678 1,043,298,941
Selected Financial Data (USD $)
Shareholders’ equity (in thousands) 12,853,400  16,009,700  15,293,600  14,390,200  14,634,200 
Book value per share (BVPS)3 13.37 16.17 15.25 14.13 14.03
Share price1, 2 94.98 96.50 96.14 100.32 74.44
Ratio
P/BV ratio4 7.10 5.97 6.30 7.10 5.31
Benchmarks
P/BV Ratio, Competitors
Starbucks Corp. 11.09 13.55 7.10 7.14 6.23
YUM! Brands Inc. 21.29 14.98 13.51 16.54 15.05
P/BV Ratio, Sector
Restaurants & Bars 9.29 8.33 7.17 7.95 6.25
P/BV Ratio, Industry
Consumer Services 4.15 3.78 3.06 2.58 2.49

1 Data adjusted for splits and stock dividends.

2 Close price on the filing date of McDonald's Corp.'s Annual Report.

2014 Calculations

3 BVPS = Shareholders’ equity ÷ No. shares of common stock outstanding
= 12,853,400,000 ÷ 961,118,669 = 13.37

4 P/BV ratio = Share price ÷ BVPS
= 94.98 ÷ 13.37 = 7.10

Ratio Description The company
P/BV ratio The P/BV ratio is interpreted as an indicator of market judgment about the relationship between a company's required rate of return and its actual rate of return. McDonald's Corp.'s P/BV ratio declined from 2012 to 2013 but then increased from 2013 to 2014 exceeding 2012 level.

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