The P/E ratio
The Price to Earnings ratio is calculated by diving the share price by the earnings per share. It can be used to compare the company to competitors or compare a company to its own records. The P/E value of a stock can be used to determine if a company is overvalued or undervalued. A high P/E ratio can mean that the company is overvalued, or that the investors expect high growth rates.
Debt-to-Equity Ratio
The debt-to-equity ratio is calculated by dividing the total debt of a company by its total shareholders' equity. The result is used in determining how dependent a business is on debt. A higher debt-to-equity ratio suggests that the risk to investors is greater, so a lower ratio is more desirable.
Current Ratio
The current ratio is calculated by diving the current assets of a company by its current liabilities. Current assets and liabilities are the short-term assets and liabilities of a company, usually less than 1 year. This ratio is useful for determining the liquidity of a company. A higher current ratio is desirable because it means the company can easily pay for unexpected expenses.
EV/EBITDA Ratio
The Enterprise Value over EBITDA ratio is calculated by dividing the Enterprise Value of a company which is Equity-Cash+Debt (In other words the EV is the amount of money required to buy a company) by its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This is an important measure of the amount of cash flow available to the firm. A lower EV/EBITDA multiple is preferred because it means the company has more cash flow compared to its value.
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