An unaware investor would say, "The stock is cheap, its current price is only Tk. 5." However, a smart investor would say, “The stock value means nothing. This stock’s EBITDA multiple is negative."
Just because the stock value is at face value, it does not make it cheap. The stock is only low-priced when the amount we are getting back surpasses the price. The smart investor correctly pointed out using the EV / EBITDA ratio. EBITDA means earnings before interest, tax, depreciation and amortization and EV means enterprise value. There are more ratios that an investor should know.
P / E Ratio
Price / Earnings or P/E ratio is the most popular equity value multiple. It indicates the multiple of earnings that stock investors are willing to pay for one share of the company.
EV / Revenue
It referred to as revenue multiple, sales multiple, or enterprise value (EV) to sales multiple measures the BDT in enterprise value for each BDT of revenue. High-profit margins are highly correlated with higher revenue multiples.
EV / EBIT
It is referred to as EBIT which means earnings before interest and tax multiple and measures the BDT in enterprise value for each BDT of EBIT. When capital expenditures are a significant consideration for the business, EBIT multiples may be better at capturing the value of capital efficiency.
EV / EBITDA
It referred to as EBITDA multiple is the most popular enterprise value multiple. EBITDA multiple measures the BDT in enterprise value for each BDT of EBITDA
Price / Sales
It compares a firm’s equity value to the twelve months of booked sales. Like the EV to Sales, the price to sales multiple is primarily useful when valuing companies with negative or depressed earnings.
