Market capitalization ratios are financial metrics used to assess the valuation, investment attractiveness, and market perception of a publicly traded company by analyzing its market capitalization relative to various financial measures, such as earnings, sales, book value, or cash flow. Market capitalization, often referred to as “market cap,” represents the total value of a company’s outstanding shares of stock, calculated by multiplying the current share price by the total number of outstanding shares. Here’s an overview of market capitalization ratios:

1. Price-to-Earnings (P/E) Ratio:

• Formula:
  
  $\text{P/E Ratio}=\frac{\text{Market Price per Share}}{\text{Earnings per Share (EPS)}}$

   

  P/E Ratio=Earnings per Share (EPS)Market Price per Share​

• Interpretation: Assesses the valuation of the company’s stock relative to its earnings, indicating the price investors are willing to pay for each dollar of earnings, with a higher ratio suggesting a higher valuation and potentially overvaluation.

2. Price-to-Sales (P/S) Ratio:

• Formula:
  
  $\text{P/S Ratio}=\frac{\text{Market Price per Share}}{\text{Sales per Share}}$

   

  P/S Ratio=Sales per ShareMarket Price per Share​

• Interpretation: Evaluates the valuation of the company’s stock relative to its sales, indicating the price investors are willing to pay for each dollar of sales, with a higher ratio suggesting a higher valuation and potentially overvaluation.

3. Price-to-Book (P/B) Ratio:

• Formula:
  
  $\text{P/B Ratio}=\frac{\text{Market Price per Share}}{\text{Book Value per Share}}$

   

  P/B Ratio=Book Value per ShareMarket Price per Share​

• Interpretation: Measures the valuation of the company’s stock relative to its book value, indicating the price investors are willing to pay for each dollar of net assets, with a higher ratio suggesting a higher valuation and potentially overvaluation.

4. Enterprise Value-to-EBITDA (EV/EBITDA) Ratio:

• Formula:
  
  $\text{EV/EBITDA Ratio}=\frac{\text{Enterprise Value}}{\text{EBITDA}}$

   

  EV/EBITDA Ratio=EBITDAEnterprise Value​

• Interpretation: Assesses the valuation of the entire enterprise, including debt and equity, relative to its earnings before interest, taxes, depreciation, and amortization (EBITDA), indicating the price investors are willing to pay for the operating performance of the company, with a higher ratio suggesting a higher valuation and potentially overvaluation.

5. Dividend Yield:

• Formula:
  
  $\text{Dividend Yield}=\frac{\text{Annual Dividend per Share}}{\text{Market Price per Share}}$

   

  Dividend Yield=Market Price per ShareAnnual Dividend per Share​

• Interpretation: Evaluates the return generated from dividends relative to the market price of the company’s stock, indicating the dividend income received by investors as a percentage of the stock price.

market capitalization ratios provide insights into the valuation, investment attractiveness, and market perception of a company by analyzing its market capitalization relative to various financial measures, such as earnings, sales, book value, or cash flow. By assessing market capitalization ratios, investors, analysts, and stakeholders can evaluate the relative valuation, investment potential, and risk profile of a company’s stock, supporting informed decision-making, analysis, and evaluation in the dynamic and competitive financial markets.