Lesson 9 of 21 · Business Health · 2 min read

Other Valuation Multiples

intermediate

P/E isn't the only way to size up price against fundamentals — P/S, P/B, and EV/EBITDA fill in cases where P/E breaks down.

P/E stops being useful the moment a company has no earnings yet (many young, fast-growing businesses) or earnings distorted by a one-off charge. InsiderWolf's Key Stats show three alternative multiples for exactly this reason — each swaps out "earnings" in the denominator for something less easily distorted.

When there's no profit to divide by, P/E goes silent — that's exactly when these three start talking.

Which multiple actually fits the situation

No profit yet, but real revenue

Use P/S — the only one of the three that works with zero earnings

Asset-heavy business (bank, insurer, REIT)

Use P/B — profit is volatile, the balance sheet is the real story

Comparing companies with different debt loads

Use EV/EBITDA — puts them on equal footing regardless of capital structure

Not mutually exclusive — a single company can be worth checking against more than one.

What each one uses instead of earnings

Multiple	Formula	Best used when
P/S (Price/Sales)	Price ÷ Revenue per Share	The company has little or no profit yet, but real revenue
P/B (Price/Book)	Price ÷ Book Value per Share (assets minus liabilities)	Asset-heavy businesses (banks, insurers, real estate)
EV/EBITDA	Enterprise Value ÷ EBITDA	Comparing companies with different debt loads or tax situations

Why Enterprise Value, not just market cap

EV/EBITDA uses Enterprise Value instead of market cap in the numerator specifically because it adds back debt and subtracts cash — putting a heavily-indebted company and a debt-free one on a more comparable footing, which a plain price-based multiple can't do on its own.

Worked example

Company A and Company B both have a $10B market cap and $1B of EBITDA. But A has $5B of debt and $1B of cash (Enterprise Value = 10 + 5 − 1 = $14B, EV/EBITDA = 14), while B is debt-free with $2B of cash (EV = 10 + 0 − 2 = $8B, EV/EBITDA = 8). Despite identical market caps and EBITDA, B is meaningfully cheaper once each company's actual capital structure is accounted for — a plain P/E or market-cap comparison would have missed that entirely.

Key takeaways

None of these replace P/E outright — they're better suited to specific situations where P/E is unreliable or unavailable.
P/S is the most permissive of the three (works even with zero profit) and correspondingly the least precise — it says nothing about whether revenue ever converts to real profit.
As with P/E, comparing these across industries with very different capital intensity or margin structures is misleading.

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