Abstract
This chapter explores the concept of profitability by establishing a dichotomy between book-value based and market-value based ratios.
Market-value based profitability ratios, namely the P/E and enterprise value (EV) multiples, constitute the core of the chapter.
Two case studies expose the link that exists between operating performance, financial profitability and their risk component, financial leverage. The first case study concentrates on current market profitability ratios while the second presents forward-looking multiples.
Key takeaways on profitability ratios and their limitations conclude the chapter.
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References and Further Reading
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Coulon, Yannick. January 2017. Guide pratique de la finance d’entreprise. Gualino.
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Jones, Bill, Terry Jones, Theo Kocken, and Ben Timlett. March 2016. Boom Bust Boom. TV Documentary (USA).
Minsky, Hyman P. 2008. Stabilizing an Unstable Economy. McGraw-Hill.
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Stowe, John D., Thomas R. Robinson, Jerald E. Pinto, and Dennis W. McLeavey. August 2002. Analysis of Equity Investments: Valuation. AIMR and CFA Institute.
Thibierge, Christophe. November 2013. Comprendre toute la finance, 2ème édition. Vuibert.
Walsh, Ciaran. 2008. Key Management Ratios, 4th ed. Financial Times Series. FT Prentice Hall. Pearson Education Limited.
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Coulon, Y. (2020). Profitability and Performance Ratios. In: Rational Investing with Ratios. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-34265-4_5
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DOI: https://doi.org/10.1007/978-3-030-34265-4_5
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Publisher Name: Palgrave Pivot, Cham
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