Stock Valuation Terms

Earnings per share calculated using actual weighted average ordinary shares outstandingThe total shares currently held by all shareholders, excluding shares retired by the company..

Example: Basic EPS excludes potential shares from options and convertible securities.

Basic Earnings Per Share means earnings per share calculated using actual weighted average ordinary shares outstanding; the valuation converts assumptions about cash flows, assets, growth, risk or required returnThe minimum expected return an investor demands for the time and risk involved. into an estimate of value or project attractiveness.

Basic EPS excludes potential shares from options and convertible securities. For Basic Earnings Per Share, a downside case and a sensitivity table reveal which assumption actually drives the result.

A sound use of Basic Earnings Per Share states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices; different methods answer different valuation questions and need not produce the same result.

The accounting value of shareholders' equityThe residual interest in assets after liabilities are deducted..

Example: A company with ₦20 billion equity has a ₦20 billion book value.

Book Value is the accounting value of shareholders' equity; the valuation forces an analyst to make the investment thesisA reasoned explanation of why an investment should produce an attractive return and what could invalidate that view. numerical: amount, timing, probability and discount rateThe rate used to convert future cash flows into present value. all enter the conclusion.

A company with ₦20 billion equity has a ₦20 billion book value.

When reviewing Book Value, focus first on the assumptions that contribute most to value and on whether management has historically delivered similar forecasts; precision in the output does not reduce uncertainty in the forecast.

Ordinary shareholders' equity divided by ordinary shares outstanding.

Example: ₦10 billion equity divided by one billion shares gives ₦10 book value per share.

Book Value Per Share describes ordinary shareholders' equity divided by ordinary shares outstanding; the valuation converts assumptions about cash flows, assets, growth, risk or required return into an estimate of value or project attractiveness.

In formula form, the measure uses ordinary shareholders' equity as the numerator and ordinary shares outstanding as the denominator. ₦10 billion equity divided by one billion shares gives ₦10 book value per share. A downside case and a sensitivity table reveal which assumption actually drives the result.

For Book Value Per Share, audit the forecast, discount rate, terminal valueThe estimated value of cash flows beyond an explicit forecast period., financing assumptions and treatment of inflationA sustained increase in the general price level, reducing the purchasing power of money. and currency; compare the result with market and asset-based evidence. Precision in the output does not reduce uncertainty in the forecast.

Earnings per share assuming potentially dilutive securities convert into ordinary shares.

Example: Employee options increase the diluted share count and reduce diluted EPS.

Diluted Earnings Per Share means earnings per share assuming potentially dilutive securities convert into ordinary shares. The result from the valuation is not discovered in the market; it is produced by a model whose assumptions determine how future benefits are translated into today's money.

Employee options increase the diluted share count and reduce diluted EPS.

Build Diluted Earnings Per Share from explicit cash-flow drivers, then run sensitivities for growth, margin, timing and required return; reject precision unsupported by the inputs. Terminal assumptions often account for most of the estimated value.

Earnings per share divided by dividendA payment made from a company's profits to eligible shareholders. per share.

Example: ₦6 EPS and a ₦2 dividend provide three-times dividend cover.

Dividend Cover means earnings per share divided by dividend per share. The result from the valuation is not discovered in the market; it is produced by a model whose assumptions determine how future benefits are translated into today's money.

In formula form, the measure uses earnings per share as the numerator and dividend per share as the denominator. ₦6 EPS and a ₦2 dividend provide three-times dividend cover.

When reviewing Dividend Cover, focus first on the assumptions that contribute most to value and on whether management has historically delivered similar forecasts; different methods answer different valuation questions and need not produce the same result.

Dividends paid to ordinary shareholders divided by earnings attributable to them.

Example: A company paying ₦3 of its ₦5 EPS has a 60% payout ratio.

Dividend Payout Ratio describes dividends paid to ordinary shareholders divided by earnings attributable to them; small changes in growth, margins, terminal assumptions or required return can produce large changes in the answer.

In formula form, the measure uses dividends paid to ordinary shareholders as the numerator and earnings attributable to them as the denominator. A company paying ₦3 of its ₦5 EPS has a 60% payout ratio.

A sound use of Dividend Payout Ratio states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices.

Annual dividend per share divided by the current share priceThe market price at which one share is quoted or traded..

Example: A ₦4 annual dividend on an ₦80 share gives a 5% dividend yield.

Dividend yield is the annual dividend as a percentage of the share price: a stock at ₦100 paying ₦8 per year yields 8%. It converts dividend income onto the same scale as interest rates, which is precisely how income investors use it, comparing a bank stock's yield against treasury bills and money market funds.

Read the construction before trusting the number. Quoted yields are usually gross; Nigerian individuals receive dividends net of 10% withholding, so the 8% is 7.2% in hand. Trailing yields divide last year's dividend by today's price and assume repetition; a company that cannot repeat makes the trailing yield fiction.

The seductive failure mode is the very high yield. Because price is the denominator, a collapsing share price manufactures a spectacular yield mechanically, and the market's message is often that the dividend is about to be cut. A 15% yield is either an overlooked bargain or a trap mid-spring; the payout ratio, earnings trend, and cash flow tell you which.

The comparison that matters in Nigeria: equity yields compete with high risk-free rates. A stock yielding less than treasury bills must promise growth to justify itself, since the T-bill's income comes without equity risk.

Net incomeProfit remaining after operating costs, financing costs, taxes, and other recognised items. attributable to ordinary shareholders divided by weighted average ordinary shares.

Example: ₦500 million earnings divided by 100 million shares gives ₦5 EPS.

EPS is a company's profit divided across its shares: net income attributable to ordinary shareholders divided by the shares outstanding. A bank earning ₦600 billion across 30 billion shares has an EPS of ₦20, the profit backing each share you might buy.

EPS is the bridge between company results and shareholderA person or entity that owns one or more shares in a company. mathematics. Share prices are per-share numbers, so profit must become per-share too before the two can meet, which they do in the P/E ratio. EPS growth over years, rather than the level in any one year, is the cleaner signal of a business actually building value per owner.

The share count in the denominator is where manipulation and dilutionA reduction in an existing holder's ownership percentage after new securities are issued. hide. Rights issues and new share sales enlarge the count, so profit can grow while EPS stalls, growth that bypassed existing owners. Diluted EPS, which assumes convertibles and options become shares, is the conservative figure to prefer. Buybacks work the arithmetic in reverse.

Quality checks belong beside the number: one-off gains, revaluations, and FX effects can inflate a year's EPS without any improvement in the underlying business. Nigerian bank results in devaluationAn official reduction in the value of a currency under a managed or fixed exchange-rate system. years are the standing local example, read the notes, not just the headline.

Earnings per share divided by share price, the inverse of the P/E ratio.

Example: ₦10 EPS on a ₦100 share gives a 10% earnings yield.

Earnings Yield means earnings per share divided by share price, the inverse of the P/E ratio; small changes in growth, margins, terminal assumptions or required return can produce large changes in the answer.

In formula form, the measure uses earnings per share as the numerator and share price, the inverse of the P/E ratio as the denominator. ₦10 EPS on a ₦100 share gives a 10% earnings yield. The arithmetic is only the final step; the quality of the estimate depends on whether the projected cash flows and discount rate reflect the business risk.

When reviewing Earnings Yield, focus first on the assumptions that contribute most to value and on whether management has historically delivered similar forecasts; terminal assumptions often account for most of the estimated value.

The value of a company's operations attributable to debt and equity investors, commonly market capitalisationThe market value of a company's outstanding shares, calculated as share price multiplied by shares outstanding. plus net debtInterest-bearing debt minus cash and cash equivalents. and other claims.

Example: A ₦100 billion market cap plus ₦20 billion net debt gives roughly ₦120 billion enterprise value.

Enterprise Value is the value of a company's operations attributable to debt and equity investors, commonly market capitalisation plus net debt and other claims; the valuation converts assumptions about cash flows, assets, growth, risk or required return into an estimate of value or project attractiveness.

A ₦100 billion market cap plus ₦20 billion net debt gives roughly ₦120 billion enterprise value. The arithmetic is only the final step; the quality of the estimate depends on whether the projected cash flows and discount rate reflect the business risk.

When reviewing Enterprise Value, focus first on the assumptions that contribute most to value and on whether management has historically delivered similar forecasts; terminal assumptions often account for most of the estimated value.

Enterprise value divided by operating profitProfit from core operations after operating expenses but before financing costs and tax. before interest and tax.

Example: The ratio compares operating value with EBIT across capital structures.

Enterprise Value to EBIT describes enterprise value divided by operating profit before interest and tax. The result from the valuation is not discovered in the market; it is produced by a model whose assumptions determine how future benefits are translated into today's money.

In formula form, the measure uses enterprise value as the numerator and operating profit before interest and tax as the denominator. The ratio compares operating value with EBIT across capital structures.

A sound use of Enterprise Value to EBIT states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices; different methods answer different valuation questions and need not produce the same result.

Enterprise value divided by EBITDAEarnings before interest, tax, depreciation, and amortisation..

Example: A ₦120 billion enterprise value and ₦15 billion EBITDA produce an 8x multiple.

Enterprise Value to EBITDA describes enterprise value divided by EBITDA; the valuation forces an analyst to make the investment thesis numerical: amount, timing, probability and discount rate all enter the conclusion.

In formula form, the measure uses enterprise value as the numerator and EBITDA as the denominator. A ₦120 billion enterprise value and ₦15 billion EBITDA produce an 8x multiple. A downside case and a sensitivity table reveal which assumption actually drives the result.

For Enterprise Value to EBITDA, audit the forecast, discount rate, terminal value, financing assumptions and treatment of inflation and currency; compare the result with market and asset-based evidence. Precision in the output does not reduce uncertainty in the forecast.

Enterprise value divided by revenue.

Example: A young company with ₦30 billion enterprise value and ₦10 billion sales trades at 3x revenue.

Enterprise Value to Sales describes enterprise value divided by revenue; the valuation converts assumptions about cash flows, assets, growth, risk or required return into an estimate of value or project attractiveness.

In formula form, the measure uses enterprise value as the numerator and revenue as the denominator. For example, a young company with ₦30 billion enterprise value and ₦10 billion sales trades at 3x revenue.

When reviewing Enterprise Value to Sales, focus first on the assumptions that contribute most to value and on whether management has historically delivered similar forecasts; a model can be mathematically correct and economically wrong.

Share price divided by forecast earnings per share.

Example: A ₦120 share with expected ₦15 EPS trades at eight times forward earnings.

Forward Price-to-Earnings Ratio means share price divided by forecast earnings per share; the valuation forces an analyst to make the investment thesis numerical: amount, timing, probability and discount rate all enter the conclusion.

In formula form, the measure uses share price as the numerator and forecast earnings per share as the denominator. A ₦120 share with expected ₦15 EPS trades at eight times forward earnings.

A sound use of Forward Price-to-Earnings Ratio states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices.

Free cash flowCash remaining after operating cash flow and necessary capital expenditure, under the stated definition. divided by market capitalisation.

Example: ₦5 billion FCF on a ₦50 billion market valueThe price at which an asset could trade in the market at a given time. gives a 10% FCF yield.

Free-Cash-Flow Yield describes free cash flow divided by market capitalisation; the valuation forces an analyst to make the investment thesis numerical: amount, timing, probability and discount rate all enter the conclusion.

In formula form, the measure uses free cash flow as the numerator and market capitalisation as the denominator. ₦5 billion FCF on a ₦50 billion market value gives a 10% FCF yield.

For Free-Cash-Flow Yield, audit the forecast, discount rate, terminal value, financing assumptions and treatment of inflation and currency; compare the result with market and asset-based evidence.

Price-to-earnings ratio divided by an expected earnings-growth rate.

Example: A P/E of 20 and expected growth of 20% produce a PEG ratio of one under the common convention.

PEG Ratio describes price-to-earnings ratio divided by an expected earnings-growth rate; the valuation forces an analyst to make the investment thesis numerical: amount, timing, probability and discount rate all enter the conclusion.

In formula form, the measure uses price-to-earnings ratio as the numerator and an expected earnings-growth rate as the denominator. A P/E of 20 and expected growth of 20% produce a PEG ratio of one under the common convention. A downside case and a sensitivity table reveal which assumption actually drives the result.

For PEG Ratio, audit the forecast, discount rate, terminal value, financing assumptions and treatment of inflation and currency; compare the result with market and asset-based evidence. Terminal assumptions often account for most of the estimated value.

Share price divided by book value per share.

Example: A bank at ₦15 with ₦10 book value per share trades at 1.5 times book.

Price-to-Book Ratio means share price divided by book value per share; small changes in growth, margins, terminal assumptions or required return can produce large changes in the answer.

In formula form, the measure uses share price as the numerator and book value per share as the denominator. For example, a bank at ₦15 with ₦10 book value per share trades at 1.5 times book.

A sound use of Price-to-Book Ratio states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices; terminal assumptions often account for most of the estimated value.

Share price or market value divided by cash flow per share or total cash flow.

Example: Analysts use cash flow when accounting earnings contain large non-cash items.

Price-to-Cash-Flow Ratio means share price or market value divided by cash flow per share or total cash flow. The result from the valuation is not discovered in the market; it is produced by a model whose assumptions determine how future benefits are translated into today's money.

In formula form, the measure uses share price or market value as the numerator and cash flow per share or total cash flow as the denominator. Analysts use cash flow when accounting earnings contain large non-cash items.

Build Price-to-Cash-Flow Ratio from explicit cash-flow drivers, then run sensitivities for growth, margin, timing and required return; reject precision unsupported by the inputs. A model can be mathematically correct and economically wrong.

Share price divided by earnings per share.

Example: A ₦100 share with ₦10 EPS trades at 10 times earnings.

The P/E ratio divides share price by earnings per share: a stock at ₦100 with EPS of ₦20 trades at 5 times earnings. It answers "how many years of current profit am I paying for?" and is the most used, and misused, valuation shorthand in equity investing.

The ratio embeds expectations. High P/E says the market expects earnings to grow into the price; low P/E says the market expects stagnation, decline, or sees risk. Neither is automatically wrong. NGX stocks have long traded at low P/Es by global standards, which partly reflects genuine bargains and partly prices real risks: currency, governance, liquidityThe ease and speed with which an investment can be converted into cash without a major price concession., and policy. Cheapness is where analysis starts, not where it concludes.

Comparisons only work within context: a bank against banks, a consumer company against its sector's history, today's market against its own past. Cross-sector and cross-country P/E rankings mislead by construction.

The denominator deserves the scrutiny. Trailing P/E uses last year's earnings, forward P/E uses forecasts, and one-off items can make either lie. A "cheap" 3x P/E built on a single devaluation-driven profit spike is not cheap; normalise the earnings, then judge the multiple.

Market capitalisation divided by free cash flow.

Example: A ₦50 billion company generating ₦5 billion free cash flow trades at ten times FCF.

Price-to-Free-Cash-Flow Ratio describes market capitalisation divided by free cash flow; small changes in growth, margins, terminal assumptions or required return can produce large changes in the answer.

In formula form, the measure uses market capitalisation as the numerator and free cash flow as the denominator. A ₦50 billion company generating ₦5 billion free cash flow trades at ten times FCF.

When reviewing Price-to-Free-Cash-Flow Ratio, focus first on the assumptions that contribute most to value and on whether management has historically delivered similar forecasts; terminal assumptions often account for most of the estimated value.

Market capitalisation divided by revenue, or share price divided by sales per share.

Example: A ₦20 billion company with ₦10 billion sales trades at two times sales.

Price-to-Sales Ratio describes market capitalisation divided by revenue, or share price divided by sales per share; the valuation converts assumptions about cash flows, assets, growth, risk or required return into an estimate of value or project attractiveness.

A ₦20 billion company with ₦10 billion sales trades at two times sales.

A sound use of Price-to-Sales Ratio states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices; a model can be mathematically correct and economically wrong.

The proportion of earnings retained after dividends.

Example: A 40% payout ratio implies a 60% retention ratio.

Retention Ratio is the proportion of earnings retained after dividends. The result from the valuation is not discovered in the market; it is produced by a model whose assumptions determine how future benefits are translated into today's money.

A 40% payout ratio implies a 60% retention ratio.

Build Retention Ratio from explicit cash-flow drivers, then run sensitivities for growth, margin, timing and required return; reject precision unsupported by the inputs. Precision in the output does not reduce uncertainty in the forecast.

The rate at which a company can grow using retained earningsCumulative profit kept in the business rather than distributed to shareholders. while maintaining its financial policies, under the model used.

Example: A 15% ROE and 60% retention ratio imply roughly 9% sustainable growth.

Sustainable Growth Rate is the rate at which a company can grow using retained earnings while maintaining its financial policies, under the model used. The result from the valuation is not discovered in the market; it is produced by a model whose assumptions determine how future benefits are translated into today's money.

A 15% ROE and 60% retention ratio imply roughly 9% sustainable growth.

Build Sustainable Growth Rate from explicit cash-flow drivers, then run sensitivities for growth, margin, timing and required return; reject precision unsupported by the inputs. A model can be mathematically correct and economically wrong.

Book value after deducting goodwillAn acquisition asset representing the excess purchase price over the fair value of identifiable net assets. and other intangible assetsNon-physical resources such as patents, licences, brands, and software..

Example: A bank's tangible book value excludes acquired goodwill.

Tangible Book Value describes book value after deducting goodwill and other intangible assets; the valuation forces an analyst to make the investment thesis numerical: amount, timing, probability and discount rate all enter the conclusion.

A bank's tangible book value excludes acquired goodwill.

A sound use of Tangible Book Value states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices; terminal assumptions often account for most of the estimated value.

Tangible ordinary equity divided by shares outstanding.

Example: Analysts compare a bank's share price with tangible book value per share.

Tangible Book Value Per Share describes tangible ordinary equity divided by shares outstanding; the valuation converts assumptions about cash flows, assets, growth, risk or required return into an estimate of value or project attractiveness.

In formula form, the measure uses tangible ordinary equity as the numerator and shares outstanding as the denominator. Analysts compare a bank's share price with tangible book value per share. The arithmetic is only the final step; the quality of the estimate depends on whether the projected cash flows and discount rate reflect the business risk.

A sound use of Tangible Book Value Per Share states the valuation date, perspective, forecast period and decision rule, and reconciles the output with comparable transactions or market prices.

Price-to-earnings ratio based on historical earnings, commonly the last twelve months.

Example: The trailing P/E uses reported rather than forecast profit.

Trailing Price-to-Earnings Ratio describes price-to-earnings ratio based on historical earnings, commonly the last twelve months; small changes in growth, margins, terminal assumptions or required return can produce large changes in the answer.

The trailing P/E uses reported rather than forecast profit. The arithmetic is only the final step; the quality of the estimate depends on whether the projected cash flows and discount rate reflect the business risk.

Build Trailing Price-to-Earnings Ratio from explicit cash-flow drivers, then run sensitivities for growth, margin, timing and required return; reject precision unsupported by the inputs. Precision in the output does not reduce uncertainty in the forecast.