TAKING THE SERIES 66 EXAM, THEN KNOW VALUATION RATIOS, SUCH AS PEG RATIO, PRICE TO BOOK, PRICE TO SALES
If you plan to take the Series 66 exam, make sure that you know, and are familiar with, various valuation ratios. What are these ratios? The price earnings ratio. The PEG ratio. The Price to Book ratio. And the Price to Sales ratio. For this posting, we discus the PEG ratio, or price/earnings ratio divided by the growth rate expected in the current year. Here's an example. The price/earnings ratio of XYZ Corp. is 12, or its P/E multiple is 12. The growth percentage expected in the current year is 14. The PEG ratio is therefore 12 divided by 14, or 0.857. This example shows that the growth percentage expected of XYZ Corp. is greater than its P/E ratio. Thus, an investor in XYZ is getting a good value because XYZ's growth rate exceeds its price-to-earnings, or the P/E ratio is less than the growth rate. Therefore, ideally no investor should buy a stock unless its growth percentage exceeds its P/E ratio. Our book Study for the Series 66 Exam covers the various valuation ratios,