def. Price to Earnings Ratio (P/E Ration).

⇒ Think: for two firms…

  • …if the market values the shares higher,
  • …even though the earnings are low,
  • …the market thinks the firm has growth potential.

How Good is the P/E Ratio?

  • The P/E ratio contains finance information so it’s a noisier measure compared to the EBITDA Multiple.
  • It’s a better measure for the pure returns you get on the share. → EBITDA is a bigger, general rule of thumb, while P/E could be better for a small invester.

fundamental analysis.

\frac{\text{Company Size}}{\text{Profitability}}, thus measuring the growth of the company.