$ qubo learn fundamentals/04

Valuation ratios: P/E, EV/EBITDA, P/S

track Fundamental analysislevel intermediateread 7 min

A valuation ratio compares a price with a measure of business size. The P/E ratio divides the share price by earnings per share: a P/E of 20 means investors pay 20 times one year of earnings.

EV/EBITDA uses enterprise value (market value plus net debt) against EBITDA, a rough measure of operating profit before depreciation. It allows comparisons between companies with different debt levels.

Price-to-sales (P/S) compares market value with revenue. It is used for companies that are not yet profitable, where P/E cannot be computed.

Ratios are only meaningful in comparison: with the company’s own history, with peers in the same sector, and with growth. A high ratio can reflect fast expected growth; a low one can reflect real problems.

// rule to remember

P/E = price ÷ EPS · EV = market value + net debt

// your turn

Compare the P/E of two companies in the same sector and write one reason that could explain the gap.

Educational content only. Not investment advice. Past data does not predict future results. Risk disclosure