The relative value method, also known as the multiplier valuation method, refers to relatively simple and common comparison methods such as the price-earnings ratio method, the price-to-book ratio method, and the price-to-sales ratio method that are often used in the securities market. It is an appraisal method that uses similar market prices to determine the value of a target. This method assumes that there is a main variable that dominates market value, and that the ratio of market value to this variable is similar and comparable for each. From this, you can select one or several targets in the market that are similar to the target. Based on analysis and comparison, you can revise and adjust the market value of the target, and finally determine the assessed market value. In practice, ratio models such as price-to-earnings ratio, price-to-book ratio, and revenue multiplier are used to calculate relative value models. The most commonly used relative value methods include the price-to-earnings ratio method and the price-to-book ratio method.

Market price/net income ratio model (price-to-earnings ratio method)

P/E ratio = market price per share/net profit per share

The model using price-to-earnings ratio valuation is as follows:

Target value per share = comparable average price-to-earnings ratio * target earnings per share

Market price/net asset ratio model (price-to-book ratio method)

Price-to-book ratio = market price/ Net assets

This method assumes that equity value is a function of net assets, similar to the same price-to-book ratio. The greater the net assets, the greater the equity value. Therefore, the equity value is a certain multiple of net assets, and the value of the target can be calculated by multiplying the net assets per share by the average price-to-book ratio.

Equity value = comparable average price-to-book ratio * target net assets