The EV/EBITDA ratio compares a company's enterprise value to its earnings before interest, taxes, depreciation, and amortization. The price-to-earnings (P/E) ratio—also sometimes known as the price multiple or earnings multiple—measures a company's current share price relative to its per-share earnings.
While the measure of a good EV/R multiple is different across companies, it's often between 1x and 3x. EV/R is a numeral with an "x" because it's a multiple, and it expresses the value of a company in proportion to its revenue.
A higher EV/Revenue multiple suggests that the market has faith in the company's ability to generate revenue and is willing to pay more per dollar of sales. For investors, a lower multiple is preferred as it indicates that a company might be undervalued and could generate more profitable returns in the future.
When assessing a healthy EV/EBITDA ratio, generally, a range between 8 to 12 is considered reasonable for most industries. Below 8 might indicate undervaluation, while above 12 could suggest overvaluation, particularly in mature sectors.
Generally, EV/Sales ratios range between 1 and 3. Anything at or below 1 will be considered a low ratio. Anything at or above a 3 would be regarded as quite high.
Companies with higher EV/EBITDA multiples may indicate higher growth expectations, stronger market positions, or unique competitive advantages. Conversely, companies with lower multiples may suggest potential undervaluation or less favorable market sentiment.
“In general, I would use EV/EBITDA to value businesses because EBITDA represents profit whereas EV/Sales neglects the impact of cost. However, there are three situations where I would place greater emphasis on EV/Sales. First, if the company has negative EBITDA, then EV/EBITDA would not be meaningful.
A stock with a price-to-sales below 1 is a good bargain as investors need to pay less than a dollar for a dollar's worth. Thus, a stock with a lower price-to-sales ratio is a more suitable investment than a stock with a high price-to-sales ratio.
3x to 5x – Startups in this category are middle of the pack. Investors consider these companies as a fair shot to success. More than 10x – This category is the 'A-list' as per investors. Startups displaying a 10x or more valuation have the highest chances of growth, profits, and expansion.
It's not just a random number; the 80/20 rule is a smart way to maximise your EV's performance. Simply put, the 20-80% rule advises maintaining an electric vehicle battery within the 20% to 80% charge range, promoting better battery longevity. Consider it as the battery's green zone.
The enterprise value-to-revenue (EV/R) multiple helps compare a company's revenues to its enterprise value. The lower the better, in that, a lower EV/R multiple signals a company is undervalued. Generally used as a valuation multiple, the EV/R is often used during acquisitions.
OS Rating: The OS rating provides a rating for each +EV bet. An OS rating above 20 signifies an exceptional bet. Ratings between 10 and 20 are highly favorable bets. Finally, a rating between 0 and 10 indicates a solid bet.
Contrasts: EV/EBITDA is often preferred in mergers and acquisitions due to its comprehensive view, whereas the P/E ratio is frequently used for evaluating a company's attractiveness to investors. Incorporation of Growth Expectations:Parallels: Both ratios implicitly incorporate expectations for future earnings growth.
Enterprise value-to-sales is calculated by: Adding total debt to a company's market cap. Subtracting out cash and cash equivalents. And then dividing the result by the company's annual sales.
Enterprise Value/Financial Metrics are often used by analysts to quickly look at a company's valuation multiples. All things being equal, the lower this ratio is, the better. EV / Assets: The enterprise value of a company divided by its total assets.
P/S ratio as of January 2025 (TTM): 13.1
According to Tesla's latest financial reports and stock price the company's current price-to-sales ratio (TTM) is 18.0. At the end of 2024 the company had a P/S ratio of 8.56.
Low inventory to sales ratios are typically better — but your goal should be to achieve a stock to sales ratio that is healthy for your business, rather than the lowest possible one. Ideally, it's best to keep this ratio between 0.167 and 0.25.
The justified P/S ratio is calculated as the price-to-sales ratio based on the Gordon Growth Model. Thus, it is the price-to-sales ratio based on the company's fundamentals rather than . Here, g is the sustainable growth rate as defined below and r is the required rate of return.
Propelled by big manufacturer incentives, EV market share is nearing 9% of all new car sales in America. Tesla still dominates with 44% of the EV market in America, but continues to see rising competition and falling market share.
Interpreting EV/EBITDA
Lower ratios generally signify a more attractive valuation. Industry averages vary widely, making sector-specific comparisons far more relevant. A ratio below 10 is often considered attractive, but this isn't a hard-and-fast rule.
Automakers are by and large already compliant with the targets this year and have little incentive to sell additional EVs. Something similar happened in 2019 ahead of the 2020 tightening of emissions standards — we saw an EV sales slowdown in the former year, followed by a big increase in the latter.
Generally speaking, a good EBITDA margin for manufacturing businesses falls between 5% and 10%. However, this will vary depending on the specific industry you are manufacturing your products for, and how capital-intensive your operations are.
The EV/EBIT ratio compares a company's enterprise value (EV) to its earnings before interest and taxes (EBIT). EV/EBIT is commonly used as a valuation metric to compare the relative value of different businesses. While similar to the EV/EBITDA ratio, EV/EBIT incorporates depreciation and amortization.
Equity Value represents the actual amount a buyer will pay to a seller for a business having made certain adjustments for matters such as cash, debt and working capital. An offer to buy a business will usually be made in terms of the Enterprise Value, and the Equity Value is what will ultimately be paid to the seller.