# Consulting Mathematics

```Consulting Mathematics
Valuation
Term
Definition
Market cap
The number of outstanding shares times the
price per share
P/E ratio
Price to earnings ratio. This is an indication of
how much investors are willing to pay for a share
per dollar of the company's earnings
P/S
Price to sales ratio. This is an indication of how
much investors are willing to pay per dollar of
Formula
Market cap = Number of
shares &times; Price per
share
P
E
P
S
=
=
Share price
Earnings per share
M arket cap
T otal sales
sales the company generates.
EV/S
Enterprise value to sales ratio. Like P/S ratio but
provides a more complete picture beacuse it
takes in the company's market cap, debt and
EV
S
=
Enterprise value
T otal sales
cash into account.
EV/E
Enterprise value to earnings ratio. Like P/E ratio
but more complete picture. Tells investors how
much value is assigned to a company per dollar
of earnings.
Enterprise
Value (EV)
A metric to measure the dollar value of a
company in the market.
Discounted
cash flows
(DCF)
A valuation method used to estimate the value of
an investment based on its expected future cash
flows. The idea is that money today is worth
more than money in the future due to its potential
earning capabilities.
EV
E
=
Enterprise value
T otal earnings
EV = Market cap + total
debt - cash
Term
Definition
Formula
This is essentially the interest rate that reflects
the time value of money. That is, when we apply
Discount rate
the discount rate we get what money today
would be worth in the future. The idea is that a
dollar today is worth more than a dollar in the
future.
V alue =
Annual prof it
Discount rate
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