Valuing a PSX-listed company almost always starts with three ratios — price-to-earnings, price-to-book, and dividend yield — and almost every mistake in using them comes from applying one ratio where a different one was needed, or trusting a number without knowing where it came from. None of the three is wrong. Each answers a different question, and PSX’s own mix of cyclical industrials, thinly-traded free floats and staggered fiscal year-ends makes picking the wrong one easy.
What each ratio actually measures
| Ratio | Formula | Answers |
|---|---|---|
| PE (price-to-earnings) | Price ÷ EPS | How many years of the last reported profit the price represents |
| PB (price-to-book) | Price ÷ book value per share | How the price compares to accounting net assets |
| Dividend yield | Trailing 12-month DPS ÷ price | Cash income relative to the price, before any capital gain |
None of these is a fair-value number by itself — each is a ratio to something else, and the “something else” is where the reading can go wrong.
Why trailing PE misleads on PSX cyclicals
The EPS in a PE ratio is trailing: the last reported audited (or reviewed) year or period. For a steady business that is a reasonable stand-in for what next year looks like. For a cyclical one it is not — a cement maker like DGKC or Lucky Cement can report a strong profit year at the top of a pricing cycle and a weak one at the bottom, with the underlying business barely changed between the two. A trailing PE computed at the peak of that cycle looks artificially cheap; the same ratio computed at the trough looks artificially expensive. The ratio is doing exactly what it is defined to do — dividing price by the most recent reported profit — the mistake is reading that as a verdict on the business rather than a snapshot of where the cycle happens to be sitting.
The general fix is a longer earnings window — several years of EPS rather than the latest one — but that is a spoke of its own and outside what this piece can source responsibly today.
Why PB carries more weight for banks
For an asset-heavy, capital-regulated business — a bank like Meezan or Bank Alfalah — book value is closer to what the business is actually worth than trailing earnings are, because a bank’s balance sheet is the business: loans, deposits and capital, all carried at or near their accounting value. PB is the more natural lens there, the way PE is the more natural lens for a business whose value sits mostly in future earning power rather than in the assets on its balance sheet today.
- Value sits mostly in future earning power, not the balance sheet.
- Steadier margins make trailing EPS a fair stand-in for next year.
- Banks and financials, where the balance sheet largely is the business.
- Cyclicals mid-cycle, where trailing EPS is temporarily unrepresentative.
Where the numbers actually come from
Every figure that goes into these ratios — EPS, book value per share, dividend per share — comes from a company’s own audited or reviewed financial statements, and PSX-listed companies publish those as company announcements through PSX’s own Data Portal Services, not through a third party. Checking that portal directly on 8 September 2026 showed several companies’ annual and half-yearly results filed in the same week, and the filings do not share one fiscal year-end — some cover a year ended 30 June 2026, others a year ended 31 December 2025. A ratio computed from “the latest annual report” therefore does not mean the same calendar window across two PSX companies; checking the period each figure actually covers, not just its label, is part of using these ratios correctly.
Putting the ratios together
No single ratio decides whether a price is reasonable. In practice the three are read together — PE against the company’s own history and its sector, PB where the balance sheet does most of the work, dividend yield as the cash-return floor under both — and read against index-level context: the KSE-100 is a total-return index, so an index-level PE comparison is answering a different question than a single company’s trailing PE. The desk’s own fair-value tool runs this comparison mechanically against the latest filed numbers; this page is the arithmetic behind it. Whatever a valuation concludes, translating it into an actual position size is a separate question — the desk’s position-size calculator covers that step.
Checking any of this yourself
The formulas above are standard accounting definitions, not something specific to PSX — any finance text defines PE, PB and dividend yield the same way. What is PSX-specific is where the inputs come from and how current they are, and that is directly checkable:
- PSX Data Portal Services — company announcements — every listed company’s filed results, in the order filed, including the fiscal year-end each result covers
Research, not advice. This explains how the standard valuation ratios work and where PSX’s own published numbers come from; it is not a recommendation to buy or sell anything. Always check the period a reported figure actually covers before comparing it to another company’s.