Skip to content

CFA Level I Exam · Financial Analysis Techniques

Valuation Ratios, Per-Share Data and Segment Analysis

Updated 7 October 2026 · Fact-checked

Valuation ratios compare a company's market price with per-share earnings, book value, cash flow or dividends, such as P/E = price ÷ EPS. Per-share data scales results by shares outstanding. Segment analysis applies margin and return ratios to each business unit. Compute carefully, check the units, then interpret against peers.

Understand Valuation Ratios, Per-Share Data and Segment Analysis

Valuation ratios link what the market pays for a share to what the company produces. The best known is the price-to-earnings ratio (P/E): price per share divided by earnings per share. A P/E of 20 means investors pay 20 units of currency for each 1 unit of annual earnings. A high P/E can signal expected growth or lower perceived risk. It can also signal that earnings are temporarily depressed.

Per-share data puts results on a common footing. Common ones are EPS, book value per share, cash flow per share and dividends per share. Use the weighted average shares for EPS. Use shares outstanding at the balance sheet date for book value per share. Always check which share count the question gives you.

Dividend measures show how profit is split. The dividend payout ratio is dividends ÷ net income. The retention rate is what is kept: 1 − payout ratio. Dividend yield is dividends per share ÷ price. Payout and retention drive growth. The sustainable growth rate is retention rate × ROE.

Segment analysis breaks a group into reporting segments (by product, region or business line). You compute segment margin, segment ROA and asset turnover using the segment disclosures. This shows which units create profit and which use capital heavily. Under IFRS 8, segments follow how management reviews the business, so definitions can differ across companies. IFRS 8 does not prescribe one profit measure. Segment profit is the measure reviewed by management, which often excludes unallocated corporate costs, so segment margins can look better than the group margin.

Key formulas to remember

Price-to-earnings ratio
P/E = Price per share ÷ EPS
The inverse, EPS ÷ price, is the earnings yield.
Price-to-book ratio
P/B = Price per share ÷ Book value per share
Book value per share = shareholders' equity ÷ shares outstanding. For common equity only, remove preferred equity first.
Dividend payout ratio
Payout ratio = Dividends ÷ Net income = DPS ÷ EPS
Use common dividends and earnings available to common shareholders.
Retention rate
Retention rate = 1 − Payout ratio
Also called the earnings retention ratio.
Dividend yield
Dividend yield = DPS ÷ Price per share
Uses the same price and period as the DPS.
Sustainable growth rate
g = Retention rate × ROE
Assumes constant ROE and payout, and no new equity issued.
Price to cash flow
P/CF = Price per share ÷ Cash flow per share
The cash flow measure used (CFO, FCF or EBITDA-based) must be stated or consistent.
Segment margin
Segment margin = Segment profit ÷ Segment revenue
Segment profit is the measure reviewed by management. Compare with the consolidated margin and with other segments.
Segment ROA
Segment ROA = Segment profit ÷ Segment assets
Segment profit is the measure reviewed by management, which often excludes unallocated corporate costs. ROA equals segment margin × segment asset turnover (revenue ÷ segment assets).

How to solve Valuation Ratios, Per-Share Data and Segment Analysis questions

Use the same short routine for any question on valuation ratios, per-share data or segments.

  1. 1Identify the ratio asked for and write its formula.
  2. 2List the inputs given and check they match: price and EPS from the same period, and the correct share count.
  3. 3Adjust inputs if needed, for example remove preferred dividends from net income or preferred equity from book value.
  4. 4Calculate the ratio, keeping extra decimals until the end.
  5. 5Check units and scale. Percentages, ratios and per-share amounts are easy to confuse.
  6. 6For segment questions, compute the ratio for each segment and compare, not just the group figure.
  7. 7Interpret in the direction the question asks: higher or lower, cheaper or more expensive, which segment is stronger.
  8. 8Match your answer to one of the three options, remembering numerical options run from smallest to largest.

Quickest way: Link ratios by identity

When to use it: When a question gives several ratios and asks for a different one, or when time is short.

  1. Use P/E × EPS = Price, and DPS = EPS × payout ratio to move between ratios in one step.
  2. Retention = 1 − payout, then g = retention × ROE. Do this mentally.
  3. For segments, work out margin first, then multiply by turnover to get ROA.
  4. Eliminate options that are the wrong order of magnitude or that use payout when retention was asked.

Common mistakes in Valuation Ratios, Per-Share Data and Segment Analysis

  • Giving the payout ratio when asked for the retention rate, or the reverse.

    The two sum to 1 and the question wording is read quickly.

    Fix: Underline which one is asked. Compute payout first, then subtract from 1 only if retention is required.

  • Using total net income without deducting preferred dividends for EPS or payout.

    Net income is the first number in the data.

    Fix: Use earnings available to common shareholders, that is net income minus preferred dividends.

  • Using the year-end share count for EPS.

    Shares outstanding is the number most easily found.

    Fix: EPS uses the weighted average shares. Book value per share uses shares outstanding at the date.

  • Comparing segment margins directly with the group margin as if they are like for like.

    Segment profit often excludes unallocated corporate costs.

    Fix: Remember the group margin includes those costs. Compare segments with each other and look at trends.

  • Treating a high P/E as always meaning an overvalued share.

    A rule of thumb gets stretched into a rule.

    Fix: A high P/E can reflect growth expectations or depressed earnings. Compare with peers and growth.

  • Mixing percentages and decimals, such as using 40 instead of 0.40 in retention × ROE.

    Ratios are quoted as percentages.

    Fix: Convert to decimals before multiplying, then convert back.

Worked examples

Example 1

A company has net income of $60 million and pays preferred dividends of $5 million. Weighted average common shares are 25 million. Common dividends paid are $22 million. What is the retention rate? A. 0.40, B. 0.60, C. 0.80.

Show the solution
  1. Earnings available to common = 60 − 5 = $55 million.
  2. Payout ratio = 22 ÷ 55 = 0.40.
  3. Retention rate = 1 − 0.40 = 0.60.
  4. Option A is the payout ratio, a common trap. Option C does not match the data.

Answer: The retention rate is 0.60 (option B).

Example 2

A company has net income of $60 million and pays preferred dividends of $5 million. Weighted average common shares are 25 million. The share price is $44. What is the P/E ratio? A. 16.9, B. 18.3, C. 20.0.

Show the solution
  1. Earnings available to common = 60 − 5 = $55 million.
  2. EPS = 55 ÷ 25 = $2.20.
  3. P/E = 44 ÷ 2.20 = 20.0.
  4. Option B (18.3) comes from using net income without deducting preferred dividends: EPS = 60 ÷ 25 = $2.40 and P/E = 44 ÷ 2.40 = 18.3. Option A (16.9) comes from adding the preferred dividends instead of deducting them: EPS = 65 ÷ 25 = $2.60 and P/E = 44 ÷ 2.60 = 16.9.

Answer: The P/E ratio is 20.0 (option C).

Example 3

A group has two reporting segments. Segment X has revenue €200 million, profit €30 million and assets €120 million. Segment Y has revenue €300 million, profit €30 million and assets €100 million. What is Segment Y's asset turnover? A. 0.30, B. 1.67, C. 3.00.

Show the solution
  1. Asset turnover = segment revenue ÷ segment assets.
  2. Segment Y asset turnover = 300 ÷ 100 = 3.00.
  3. Check: margin 30 ÷ 300 = 10% × 3.00 = 30%, which equals ROA of 30 ÷ 100 = 30%.
  4. Option A (0.30) is Segment Y's ROA written as a decimal, not turnover. Option B (1.67) is Segment X's turnover: 200 ÷ 120.

Answer: Segment Y's asset turnover is 3.00 (option C).

Exam tips

  • Read whether the question asks for payout or retention. Examiners often place the wrong one among the options.
  • Check the share count and whether preferred dividends need deducting before calculating anything.
  • For segment questions, compute margin and turnover separately. The answer often hinges on which one drives ROA.
  • If a P/E question asks for interpretation, pick the option that links P/E to growth or risk and avoid the one that says high always means overvalued.
  • With no penalty for wrong answers, always pick an option. Eliminate those with the wrong magnitude first.

Practice questions from Financial Analysis Techniques

Valuation Ratios, Per-Share Data and Segment Analysis in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Valuation Ratios, Per-Share Data and Segment Analysis: frequently asked questions

How do I calculate the P/E ratio?

Divide the price per share by earnings per share. Use EPS for the same period you want, such as the last twelve months or forecast next year. The result is a multiple, such as 18 times.

What is the difference between dividend payout ratio and retention rate?

The payout ratio is the share of earnings paid out as dividends. The retention rate is the share kept in the business, which equals 1 minus the payout ratio. Retention multiplied by ROE gives the sustainable growth rate.

Why is segment analysis useful for valuation?

Segments can differ greatly in growth, margins and capital use. Ratios by segment show which units drive group returns. Analysts can then value each unit with suitable multiples instead of using one blended figure.

Do I need a calculator for these ratios?

Most are simple division, so any approved calculator works. On the TI BA II Plus, keep full precision by using the memory or chained operations. Round only at the end.