Suppose you were the owner of a small bakery store, and you wanted to sell it for $10. Being a potential buyer, how would I know wheter it's really worth my while? Although it was as cheap as $10, I would not go for the deal if it was a loss-making business. No one pays to lose money.

That's when Valuation ratios come in handy. This is another set of indicators that helps us measure the value of a company, and its common equity in particular.

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