Valuation Lab
Reason out what a business is actually worth,then compare it to the price.
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Sign inThis Lab separates price from value. Price is what the market is asking today. Value is what you reason the business is actually worth. The Lab uses the same simplified formula as the lesson: earnings per share multiplied by a reasonable multiple. You set the EPS, the multiple and the current market price, and the Lab compares the value you reasoned out with the price.
How to use this Lab
- Set the Earnings per Share (EPS), from ₹5 to ₹500. The Lab starts from the lesson's own worked example of ₹126.
- Set the reasonable multiple, from 10 to 40 times. This is your judgment of what buyers should pay for each rupee of earnings.
- Set the current market price, from ₹100 to ₹10,000.
- Read the value you reasoned out (EPS x multiple), the price the market is asking, and the sentence that compares them.
What to notice
- The multiple is a judgment call
- Raise the multiple and watch an expensive-looking price turn fair. That is not a flaw in the method. It is the honest reality of estimating under uncertainty, and it is why the Lab shows the multiple as something you choose, not a fact.
- A gap is a starting point, not a verdict
- The Lab calls a price cheap, fair or expensive relative to your own estimate, using a band of 10 percent either side. The label depends entirely on the numbers you put in.
- Price and value can drift apart
- The two are different things. Crowd mood can push the price away from the value you reasoned out, in either direction, for a long time.
Three runs of the Lab (hypothetical)
With an EPS of ₹126, a multiple of 22 and a market price of ₹3,900, the value you reasoned out is ₹2,772. The price is about 41 percent above it, so the Lab says the price looks expensive relative to your estimate.
Raise the multiple to 30 and the value becomes ₹3,780. The price is only about 3 percent above it, so the Lab says it looks roughly fair.
Raise the multiple to 40 and the value becomes ₹5,040. Now the price is about 23 percent below it, and the Lab says it looks cheap. The company and the price did not change in any of the three. Only the multiple you assumed did.
What this Lab does not show
- EPS multiplied by a multiple is a simplified formula. Real valuation also looks at growth, debt, cash flow, risks and the quality of the business, which this Lab does not model.
- The starting numbers come from a worked example in the lesson, not a current market quote. Use real, current figures from a company's own reports if you want to apply the idea.
- A cheap or expensive label is relative to your own estimate. It is not a signal to buy or sell, and Maetis does not give investment advice.
Common questions
- What does this valuation calculator do?
- It multiplies earnings per share by a multiple you choose and compares the result with the market price, so you can see how far price and your estimate of value differ.
- What multiple should I use?
- The Lab suggests none. Try several and see how much the conclusion depends on it, which is the point of the exercise.
- Is this the same as the P/E ratio?
- It uses the same idea. The P/E ratio is the price divided by EPS. This Lab turns it around: it starts from a multiple you consider reasonable and works out the value.
- If the Lab says cheap, should I buy?
- No. The label only compares the price with your own estimate. A cheap-looking price can be a poor business, and your estimate can be wrong.