EV/EBITDA, P/B and P/S: the other multiples and when each fits

If the P/E were enough, this would be a short sub-module. But the P/E has a narrow field of view: it works beautifully on a steadily profitable, lightly-indebted business and falls apart everywhere else. A company drowning in debt, a young firm with no profit yet, a bank, a cyclical metals giant — for each of these the P/E either lies or stays silent. So investors keep a small toolkit of other multiples, and the real skill is knowing which lens to reach for in front of which business.

Every multiple is the same basic creature: a price on top, a measure of the business underneath, asking how much am I paying per unit of that thing? What changes is which 'price' and which 'thing' — and that choice is everything. Let's meet the three that matter most beyond the P/E.

EV/EBITDA: the multiple that sees through debt

Start with the most useful and most jargon-laden: EV/EBITDA. Both halves need unpacking, but each is simpler than its acronym suggests.

EV is enterprise value — the price of the whole business, not just its shares. To buy a company outright you'd pay for its equity and take on its debt, but you'd also pocket its spare cash. So enterprise value is the market value of the equity, plus the debt, minus the cash. It answers a cleaner question than the share price alone: what would it cost to own the entire enterprise, debts and all?

EBITDA is earnings before interest, taxes, depreciation and amortisation — profit measured before the costs of how the business is financed (interest), what it owes the taxman (taxes), and the accounting charges for ageing assets (depreciation and amortisation). It's a rough proxy for the raw cash the operations throw off before the financing and accounting layers are applied.

Why bother? Because EV/EBITDA lets you compare two companies fairly even when one carries far more debt than the other. Two firms can have identical operations, but if one borrowed heavily, its P/E will look distorted by all that interest expense, while the other's looks clean. EV/EBITDA strips the financing differences out and compares the underlying engines. It's the natural lens for capital-heavy, debt-using businesses — telecom, cement, infrastructure, manufacturing — and it's what acquirers reach for when sizing up a whole company.

Price-to-book: the lens for balance-sheet businesses

We met P/B briefly with the P/E; here we give it its due, because for a whole category of companies it's the primary lens, not a backup. P/B divides the share price by book value per share — the company's net worth on the balance sheet (assets minus liabilities), split across all shares. A P/B of 1 means the market values the company at exactly its accounting net worth; a P/B of 2 means twice that.

P/B earns its keep wherever a business is its balance sheet. The clearest case in India is banks and financial firms. A bank's raw material is money: it takes deposits, makes loans, and its whole value sits in the size and quality of that book of assets. Its annual profit is lumpy and unreliable — one bad year of loans gone sour can mean enormous provisions that crater earnings while the underlying book is intact. So a P/E on a bank can whipsaw wildly, while P/B stays steady and meaningful. Investors anchor on P/B and then ask the only question that matters for a lender: how good is the book — how likely are those loans to actually be repaid?

P/B also suits insurers, NBFCs and heavy-asset industrials — anywhere tangible, balance-sheet assets are the business. But recall its blind spot from the P/E chapter: book value barely counts intangibles. A consumer-goods champion or a software platform may carry little on its balance sheet yet be worth enormous sums for its brand or code. Judging such a company on P/B is like weighing a racehorse by its saddle.

Price-to-sales: the lens for businesses with no profit yet

The last of the trio handles a situation the P/E simply can't: a company that has revenue but no profit. P/S divides the market value by annual sales (revenue). It exists because plenty of real, growing businesses — young technology firms, scaling consumer-internet companies — deliberately run at a loss for years while they grab market share. They have no 'E' for a P/E, but they certainly have sales.

P/S asks a deliberately crude question: how much am I paying for every rupee of revenue this company brings in? It's a placeholder for profitability that hasn't arrived yet — a way to size a fast-growing, loss-making business against its peers when the bottom line is still red.

Used with that caution, P/S has a place — especially for comparing companies in the same young industry with similar economics, where margins haven't settled but revenue scale tells you something about who's winning. The moment a company matures into reliable profit, you graduate it back to P/E or EV/EBITDA, where the real test of value lives.

Choosing the right lens

Step back, and the toolkit organises itself by the kind of business in front of you. There's no universal 'best' multiple — only the right one for the situation, and a willingness to use two or three together and see if they agree.

• Steady, profitable, lightly-indebted business (consumer brands, services, software with profits): start with the P/E.
• Capital-heavy or debt-using business (telecom, cement, infrastructure, manufacturing): reach for EV/EBITDA to see past the financing.
• Balance-sheet business (banks, insurers, NBFCs, asset-heavy lenders): anchor on P/B, then interrogate the quality of the book.
• Fast-growing but not yet profitable (young tech, scaling consumer-internet): use P/S as a temporary stand-in, with deep scepticism about future margins.
• Cyclical business (metals, autos, commodities): be wary of all of them at the peak, when profits and earnings-based multiples look deceptively cheap.

Underneath every one of these multiples sits the same machinery from the previous sub-module: each is a compressed bet about future cash, growth and risk — a DCF folded into a single convenient number. The convenience is the danger, because the assumptions are hidden, not absent. But once you can match the lens to the business, you stop reciting numbers and start reading them. And reading them well sets up the final question of the whole module, which we turn to next: why the same multiple is a bargain on one business and a trap on another — and why no ratio, however clever, ever excuses you from understanding the business beneath it.