A, Dewing in his Financial Policy of Corporations (1938J provides the following guidelines to choosing a P/E ratio for private businesses, based on after-tax profits. These multiples were used for companies in the United States some 70 years ago and are applicable to a time of low economic growth. This is, however, a useful guide to P/E ratios for smaller private companies in the United Kingdom, particularly now that inflation is low.

For old-established business, with large assets and excellent goodwill: a P/E ratio of 10.

Well-established business, but requiring considerable management skis: P/E ratio of 8.

Well-established business, but subject to shifts in general economic conditions and products vulnerable to depressions: P/E ratio of 7,

Business requiring small capital investment, but above average executive ability to manage: P/E ratio of 5.

Small Industrial business, highly competitive, relatively small capital (one which virtually anyone could run): P/E ratio of 4.

Business which depends on special, often unusual, skills of one, or a group of managers, small capital, highly competitive, high mortality: P/G ratio of 2.

Personal service businesses, requiring virtually no capital. Owner has special skills and intensive knowledge of business. Earnings reflect his skill and it is questionable whether it can continue without him: P/E ratio of 1.

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