The PE ratio, as any MBA worth his salt would know, is considered a measure of the growth prospects of a particular stock. The ratio compares the market price of the company’s share to the earnings per share of that company. The higher the PE ratio the higher the prospects of growth. But a high PE ratio could also be possible if the market has over valued the stock. So a high PE ratio may also be considered risky for someone who has invested in that company’s stock. When there is a shakeout in the market, like the one which happened due to the mortgage market, the stocks could all come tumbling down.

In India, the MBA factories are also very competitive and on a fast growth track. Every year, business magazines publish ranking of B-schools. Various parameters are used to find out the top 10 B-schools of that year. Most of the students generally consider these rankings their bible and often prefer a high-ranking B-school (let’s say by placements) even without considering other parameters which turn out to be more important in the long term.

I’ve always taken these rankings with a pinch of salt, but now that I’ve “been there, done that,” I’ve come up with a parameter myself of one possible way to rank B-schools. Let me introduce the StuFac ratio. This multiple can be used at both the institute level and at an individual student level. At the institute level, it is simply a ratio of the average salary of the students to the average salary of the faculty of that institute. For an individual level, the ratio is the salary of the student to the average salary of the faculty. Just like the PE ratio, the StuFac ratio can be a proxy for an institute/student’s growth potential (as well as the risk associated with overpricing of the student).

Now as innovative as this measure may be, I want to make it clear that it is by no means comprehensive. More than an accurate measure, it is just a (egoistic) way to compare different B-schools and students therein. However, as any MBA grad who has spent a few years in the industry would know, after the first job, it is the student’s initiative and hard work which dictates his growth path and not which B-school he graduated from.

P.S. If any B-magazines are contemplating to use this measure for their rankings next year, do not forget to consider a royalty for me.