2.2.

1 Price/Earnings (P/E) Ratio

The ratio of Price/ earnings (P/E) Ratio makes an assessment of an organization’s cutting-
edge proportion of the relationship between price and its earnings per share. This ratio shows
how the earnings in percentage of an organization’s stock are produced. This ratio is critical
as it show whether the stocks are overvalued or undervalued. If wrongly used, it might cost
the business huge lost in term of results. This ratio is best suit in analysing and comparing
companies in the same industry. Inside the funding network, companies with the greatest
ratio are considered volatile “fluctuating” relatively to the company with lower price-to
earnings ratios. The connection among this ratio and the cost of the stock is direct and
investor can subsequently choose to buy stocks through superior P/E ratio because dealers
might as well include the concept of high risk. (My accounting Course, 2018).

For example, Telekom Malaysia has the highest P/E ratio (27.46) in 2016 and this is because
Telekom Malaysia has an overvalued position, but high P/E ratio are not good to buy in the
long-term either (Telekom Malaysia, 2016). Celcom Axiata have the lowest P/E ratio among
the 3 company which is 8.28 and it is undervalued showing that Celcom Axiata have high in
earning per share (Annual Report Celcom Axiata, 2016).

2.2.2 Price/Book (P/B) Ratio

The ratio helps in understanding how many times the stock is trading over and above the
company's book value. It is the total value of the company's assets that shareholders would
theoretically get if the company were to wind up. The PB ratio is useful only when you are
looking at businesses that are capital intensive like the telecommunication industry. In a
raging bull market it can also mean that something is fundamentally wrong with the company.
Conversely, a stock with a PB ratio of more than 1 can be viewed as relatively expensive or
overvalued. Investors find the P/B ratio useful because the book value of equity provides a
relatively stable and intuitive metric that can be easily compared to the market price. Also,
the P/B ratio can be used for firms with positive book values and negative earnings since
negative earnings render price-to-earnings ratios useless, and there are fewer companies with
negative book values than companies with negative earnings. For example, Digi Company
has the higher P/B ratio (78.67) than the other 3 which are Celcom Axiata (23.6), Maxis
(10.3), and the lowest is TM (3.27). Digi have the higheest P/B ratio because the share price
is high and the Shareholders’ Equity per share is low. This shows that Digi have higher value
in market (Annual Report Digi, 2016).
2.2.3 Price/Sales (P/S) Ratio
The P/S Ratio is ideal for valuing companies in the investment phase and is widely used to
assess the value of cyclical stocks. The ratio shows the number of years in which a
company’s sales equals its market capitalisation. If the P/S Ratio of a company is 2, it implies
that it will take two years for the company’s sales to reach its market capitalisation. The ratio
can also be interpreted as the money that investors are willing to pay for every rupee of sales
generated by the company. The P/S ratio is considered a particularly good metric for
evaluating young, potential high-growth companies or companies in cyclical industries that
may not show an actual net profit every year. The P/S ratio provides a financial evaluation
measure that can provide a good basis for analysing such companies that may be showing
temporary negative earnings. It provides an alternative to evaluation metrics such as
the price-earnings (P/E) ratio or dividend yield, metrics more properly applied to companies
with net profitability. This is not to say that the P/S ratio is not useful in analysing currently
profitable companies. It is a particularly helpful metric for examining companies that are not
showing profitability at the moment or that are showing only minimal profits. (Finance
formula, n.d.). As an example, the highest P/S ratio between the 4 companies is Digi. This is
because Digi have higher revenue of the company in the future which can be risky for
investors since we can really know what can happen in the future (Annual Report Digi, 2016).
Then, the lowest P/S ratio between the 4 companies is Celcom Axiata with 1.82, this is
because, Celcom Axiata has higher Sales per share (Annual Report Celcom Axiata, 2016).
Which is very good news for Celcom Axiata and us the investors,
2.2.4 Price/Cash Flow (P/CF) Ratio
One of the most important investment valuation ratios is Price to Cash Flow Ratio. Many
financial experts considered this ratio as a more accurate measure of judging the
attractiveness of an investment than price to earnings ratio. There is a simple reason behind
that. In case of P/CF ratio, we consider the cash flow from operations which is the exact
measure of how much cash came in and went out from core operations. Unlike cash flow,
earnings can be easily manipulated because earnings or net income easily get affected by
depreciation and other non-cash factors (Forbes, 2012). The price to cash flow ratio would
provide a better idea of the amount of money available to management for further research
and development, marketing support, debt reduction, dividends, share repurchases, and more.
For the best results, a good analyst would most likely average several years, perhaps as much
as one full business cycle, of cash flow statements to get an adjusted price to cash flow ratio
that factored in the entire development cycle of several drugs or products (Finance formula,
n.d.). For example, Digi have the highest P/CF ratio, which is 23.52 followed by Maxis 14.51,
TM 7.84, and Celcom Axiata 6.22. The higher P/CF ratio would show that the company is
overvalued and this is because a high P/CF ratio means the stock price is high relative to the
cash flow (Annual Report Digi 2016 and Annual Report Celcom Axiata, 2016).
Challenges

P/E Ratio

The challenging situations of this ratio is the needs for the authentic facts, a wrong data could
cause a bad result and misunderstanding for the investors. For example, the Maxis Company,
if the Earning per share figure used the wrong figure will affect the ratio directly (Annual
Report Maxis, 2016). This ratio does not present a clear aspect of future incomes prospective
of the company, within the period of high inflation, this ratio tend to decrease due to the fact
the marketplace sees income while synthetically incorrect notion increase. Except that, the
organization control branch regularly seeks the level of business profits record by converting
the account decision, this is suitable to fulfil investors expectancies. The usage of this ratio
for asset estimation might be a completely unstable and irresponsible system and regardless
of a few borders, this ratio is an extremely simple tool for stock evaluation. Essentially, it's
far hard to estimate whether or not a particular P/E ratio is low or high and traders ought to
no longer make any funding decision thinking about the ratio alone. In this case, by using the
P/E ratio investor will have first priority to invest in TM Company, because they have high in
P/E ratio.

P/B Ratio

However, when accounting standards applied by firms vary, P/B ratios may not be
comparable, especially for companies from different countries. Also, P/B ratios can be less
useful for services and information technology companies with little tangible assets on
their balance sheets. Finally, the book value can become negative as a result of a long series
of negative earnings, making the P/B ratio useless for relative valuation purposes (Finance
and Career, 2013). It does not take into account factors such as goodwill, brand name and
intellectual property .In particular; it is less useful in understanding the value of service
oriented companies that do not have significant tangible assets. The above explanation is our
challenges, because our 4 company is a telecommunication industry, so the ratio figure will
depend on is the company focus on this ratio or not. For example, Digi have the highest ratio
in this P/B ratio, because their shareholders’ equity per share was low.
P/S Ratio

If firms made significant amount of sales on credit, that will inflate their Price to Sales ratio,
but that does not necessarily indicate operating profits as measured by earnings and cash
flow. For example, in this ratio the 4 industry didn’t used indicate operating profits as
measured by earnings and cash flow, but it’s used shared price and Sales per share for
calculate the Price to Sales ratio. Furthermore, analyst should be careful about the revenue
recognition practices that can still distort sales forecast thus P/S ratio. P/S ratios can capture
the sales part, but it cannot capture the differences in cost structure across companies.

P/CF Ratio

Like many ratios offering an indication of a company’s market value, the price to cash flow
ratio is predominantly expressed as a figure for the trailing twelve months (TTM). As such,
figures may have altered significantly and provide an imperfect overview for investors’
requirements. In addition, different industries are associated with different P/CF levels. The
use of P/CF as a comparison tool should therefore be limited to comparing companies that
offer similar products and services. As is often the case, the price to cash flow ratio should be
used in conjunction with other methods of analysis so as to provide a true, more accurate
overview of the company in question (Forbes, 2012). In this ratio, this is the most important
ratio among the 3 ratio, because this ratio will affect the investor whether to invest or not
invest. This ratio will difficult to calculate, because the share price need to take the overall
share price to calculate. So, if the share price calculated wrong it will affect the whole ratio.
The 4 Company will try hard to keep the ratio not to drop, because it will affect the investor
to invest.