Course · Act V: Good Investment, Bad Investment · Chapter 25
P/E and EV/EBITDA multiples
Valuation multiples: market cap, enterprise value, the P/E ratio and EV/EBITDA, and how to spot a value trap.
Key terms
- Market cap
- Share price × shares outstanding.
- Enterprise value
- Market cap + debt − cash. The price of the whole business.
- P/E
- Price ÷ EPS: dollars paid per dollar of annual earnings.
- EV/EBITDA
- Enterprise value ÷ EBITDA. Compares companies regardless of debt.
- Value trap
- A stock that looks cheap because its business is in decline.
“Multiples: P/E & EV/EBITDA” is part of the full course: 5 puzzles on p/e and ev/ebitda multiples, with a story that carries through all five acts. Try this act’s free chapter, “Time Value of Money”, first.