Skip to main content
FLC
Start Learning

Lesson plan · Understanding Businesses · Lesson 9

What Is a Company Worth?

Market value, earnings multiples, and why price isn't the same as value.

  • 45 minutes
  • Grades 9–12
  • Intermediate
  • Activity: pairs
Present slidesWorksheet + keyStudent lesson

Objectives

Students will be able to:

  • Calculate market capitalization and the price-to-earnings (P/E) ratio
  • Explain what a high P/E suggests about expectations
  • Distinguish price from value

Materials

  • Slide deck and a projector
  • Worksheet (one per student)
  • Exit ticket slips (bottom of the worksheet)

Key vocabulary

Market capitalization
Share price × number of shares. It's what the stock market says the whole company is worth today.
Price-to-earnings (P/E) ratio
Share price ÷ earnings per share — or, for the whole company, market cap ÷ net income. It shows how many dollars investors pay for each $1 of yearly profit.

45-minute agenda

  1. 0–5 min

    Warm-up

    Post: “A pizza shop earns $50,000 a year in profit. What's the most you'd pay to buy it? Why?”

    Teacher note: Push students to think in years of profit: paying $250,000 means five years of profit to earn it back, before any growth.

  2. 5–17 min

    Direct instruction

    Present the lesson slides. Make sure students leave with these points:

    • Market cap = share price × shares.
    • P/E = price ÷ earnings per share (or market cap ÷ net income).
    • High P/E = high expectations.
    • Price is what you pay; value is what you get.

    Use the “See it” slide (Same profit, different price) to make the idea visual.

  3. 17–22 min

    Worked example

    Walk through “Buying a pizza shop” on the slides. Pause before the result and ask students to predict it.

  4. 22–32 min

    Buy the Pizza Shop

    Format: pairs · 10 minutes

    1. The shop earns $60,000 a year in profit. Seller A asks $300,000. Seller B asks $900,000 for an identical shop in a fast-growing neighborhood.
    2. Pairs calculate each price as a multiple of earnings and the years of profit needed to earn back the price (ignoring growth).
    3. Pairs decide whether either price could make sense, and what would have to be true about growth or risk.

    What to look for: A: 5× earnings, 5 years to earn back. B: 15× earnings, 15 years — only sensible if profits are expected to grow a lot. That's what a high P/E means.

  5. 32–37 min

    Check for understanding

    Use the question slides — or run them as a Four Corners game. Answers:

    1. What's its market cap? — C. $250 million
    2. What's its P/E ratio? — A. 30
    3. What's a likely market reaction? — B. The price may fall because growth fell short of high expectations.
  6. 37–42 min

    Discussion

    • Would you rather buy a company with a P/E of 10 or 50? What would you want to know first?
    • Why might two smart investors disagree about what a company is worth?
  7. 42–45 min

    Exit ticket

    Prompt: What does a high P/E ratio suggest?

    Answer: Investors expect strong future growth — and are paying a lot today for it.

Differentiation

Common misconception

“A low P/E means a stock is a bargain.” It may reflect real problems or low expected growth.

Support

Provide the formulas with a worked example using round numbers.

Extension

Look up the P/E ratios of two companies in the same industry and explain why they might differ.

Homework or make-up work

Students can complete the full interactive lesson — including its knowledge check — at learnwithflc.org/courses/understanding-businesses/valuation. No account needed; progress saves on their device.