Explain the method of valuation of equity shares based on price-earnings ratio.

Valuation based on price earnings ratio method is suitable for ascertaining the market value of shares which are quoted on a recognised stock exchange. According to this method, the shares are valued on the basis of earning per share multiplied by price earning ratio. Thus, Market value of share = Price earning ratio × Earning per share Where, Earning per share = Profit available for equity shareholders / Number of equity shares Price earning ratio = Market value per share / Earning per share