What is the EV/EBITDA Multiple and how to use it?

The EV-to-EBITDA Multiple is a “valuation metric” used to measure the fair market value of a company. I value the EV/EBITDA ratio above the Price-to-Earnings ratio as the Enterprise Value and the EBITDA component tend to be a lot more in-depth than the price and the earnings alone. Using the total EV against the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) allows us to value similar companies side by side from the perspective of an acquirer.

The EV-to-EBITDA multiple explained. The EV-to-EBITDA Multiple is a “valuation metric” used to measure the fair market value of a company. I value the EV/EBITDA ratio above the Price-to-Earnings ratio as the Enterprise Value and the EBITDA component tend to be a lot more in-depth than the price and the earnings alone. Using the total… Continue reading →

What is the Enterprise Value and how to use it?

The Enterprise Value is a metric used to determine the total value of a company if it were to be purchased entirely. It is different from market capitalisation, which considers only the common equity of all shares. The EV provides a more accurate representation of a company’s actual value in terms of its total purchase price.

The Enterprise Value explained. The Enterprise Value is a metric used to determine the total value of a company if it were to be purchased entirely. It is different from market capitalisation, which considers only the common equity of all shares. The EV provides a more accurate representation of a company’s actual value in terms… Continue reading →

What is the Price-to-Book ratio and how to use it?

The price-to-book ratio is a “valuation metric” that measures the current market value of a company relative to its book value (also known as shareholders equity). The book value represents all the physical capital a company invests in, such as warehouses, computers, machinery, property, and inventory. The price-to-book (P/B) ratio is important because it helps investors understand whether a company’s market price seems reasonable compared to its balance sheet.

The Price-to-Book ratio explained. The price-to-book ratio is a “valuation metric” that measures the current market value of a company relative to its book value (also known as shareholders equity). The book value represents all the physical capital a company invests in, such as warehouses, computers, machinery, property, and inventory. The price-to-book (P/B) ratio is… Continue reading →

What is the Price-to-Cash Flow and how to use it?

The price-to-cash flow ratio is a “valuation metric” that measures a company’s stock price value relative to its per-share operating cash flow (the amount of cash it produces). The P/CF is a handy tool as it considers a company’s ability to generate cash flow from its operations while removing the impact of non-cash expenses such as depreciation and amortisation. This helps the ratio be more reliable as it minimises the exposure to manipulated accounting practices from earnings reported.

The Price-to-Cash ratio explained. The price-to-cash flow ratio is a “valuation metric” that measures a company’s stock price value relative to its per-share operating cash flow (the amount of cash it produces). The P/CF is a handy tool as it considers a company’s ability to generate cash flow from its operations while removing the impact… Continue reading →

What is the PEG ratio and how to use it?

The price/earnings-to-growth (PEG) ratio is a “valuation metric” that compares a company’s price-to-earnings to its EGR (expected growth rate). The metric can help investors value a stock by comparing the company’s market price, earnings, and future growth prospects.

The P/E-to-Growth ratio explained. The price/earnings-to-growth (PEG ratio) ratio is a “valuation metric” that compares a company’s price-to-earnings to its EGR (expected growth rate). The metric can help investors value a stock by comparing the company’s market price, earnings, and future growth prospects. A PEG ratio of 1 represents a perfect correlation between the P/E… Continue reading →

What is the Price-to-Earnings ratio and how to use it?

The price-to-earnings ratio is a “valuation metric” used to value a company’s share price relative to its earnings per share (EPS). It is one of the most used valuation ratios by investors to determine if a stock is undervalued or overvalued.

The Price-to-Earnings ratio explained. The price-to-earnings ratio is a “valuation metric” used to value a company’s share price relative to its earnings per share (EPS). It is one of the most used valuation ratios by investors to determine if a stock is undervalued or overvalued. When you buy a share of a business you are… Continue reading →

What is the Price-to-Sales ratio and how to use it?

The price-to-sales ratio is a “valuation metric” used to measure the value of a company compared to its annual sales (revenue). It can be measured using market capitalisation against total revenue or on a per-share basis against sales per share. The price-to-sales ratio indicates what investors are willing to pay for every dollar of sales generated by the business.

The Price-to-Sales explained. The price-to-sales ratio is a “valuation metric” used to measure the value of a company compared to its annual sales (revenue). It can be measured using market capitalisation against total revenue or on a per-share basis against sales per share. The price-to-sales ratio indicates what investors are willing to pay for every… Continue reading →

What is the Operating Margin and how to use it?

The operating margin is a “profitability ratio” also known as the EBIT Margin or Return on Sales. The operating margin measures the revenue after deducting the operating expenses associated with generating that sale to show how much profit a business makes on a dollar of sales. It excludes Interest and tax expenses.

The Operating Margin ratio explained. The operating margin is a “profitability ratio” also known as the EBIT Margin or Return on Sales. The ratio measures the revenue after deducting the operating expenses associated with generating that sale to show how much profit a business makes on a dollar of sales. It excludes Interest and tax… Continue reading →

This is what I look for when using multiples.

I have compiled a table of investment ratio multiples that I often use when looking for investment opportunities. The table includes the ratio, the multiple I aim at and what I look for, allowing for easy reflection of my investing approach. While my personal investment style focuses on GARP (Growth At Reasonable Prices), I still… Continue reading →

What is the Operating Leverage and how to use it?

The Operating Leverage is a financial efficiency ratio not specifically a “profitability ratio”. The OL is a ratio used to measure how operating income is affected by how fixed & variable costs intertwine with sales volume. Operating leverage and profitability are positively related as profits are determined by the fixed and variable costs associated with generating that revenue.

The Operating Leverage ratio explained. The Operating Leverage is a financial efficiency ratio not specifically a “profitability ratio”. The OL is a ratio used to measure how operating income is affected by how fixed & variable costs intertwine with sales volume. Operating leverage and profitability are positively related as profits are determined by the fixed… Continue reading →