Valuation Overview

Valuation metrics are shortcuts. They help you compare companies, but only in context.

P/E (Price-to-Earnings)

Best for companies with stable earnings.

Watch out for:

• One-time gains/losses
• Cyclical earnings peaks

P/S (Price-to-Sales)

Useful for unprofitable or early-stage companies.

Watch out for:

• Thin margins (sales don’t equal profits)
• Heavy dilution

EV/EBITDA

Helpful when capital structure differs across peers.

Watch out for:

• EBITDA ignoring capex and working capital

Quick Rules of Thumb

1. Compare within the same industry
2. Always check margins and growth
3. Use more than one metric

Summary

Valuation ratios are tools, not answers. Pair them with business quality and financial statement trends.