Super IP-calculator

P/E

The price-to-earnings ratio is a widely used valuation multiple used for measuring the relative valuation of companies: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with a lower P/E ratio. Although widely reported, the price-to earnings multiple has two limitations,

1. The P/E is affected by a company’s capital structure, not just its operating performance.
2. Unlike EBIITA, net income is calculated after non-operating items such as amortization of intangible assets and one-time gains and losses. Thus, a non-operating loss, such as a noncash write-off, can significantly lower earning, causing the P/E to be artificially high.

EV/EBIT

It is the profits of the company before the impact of interest income, interest expense and tax expense. EV/EBIT is also known as EBIT Multiple. This is an extremely useful indicator and like PE Ratio, it shows how many times a share price trades against earnings.

The difference between EBIT Multiple and PE Ratio is that EBIT Multiple takes into account distortions in earnings caused by cash holdings and borrowings, while PE Ratio just lumps in everything.

EV/EBIT is also known as EBIT Multiple. This is an extremely useful indicator and like PE Ratio, it shows how many times a share price trades against earnings.

If we were to use just the PE Ratio to measure a company’s valuation, we may overlook the true income generating power of its underlying business.

EV/EBITDA

EV/EBITDA is a valuation multiple used to measure the value of a company. This important multiple is often used in conjunction with, or as an alternative to, the Price/Earnings ratio to determine the fair market value of a company. Enterprise value or EV is the cost of buying the right to the whole of an enterprise's core cash flow. It is equal to the estimated value of the operations of an enterprise as represented by the value of the various claims on cash flow and profit.

 

This multiple is used to compare the efficiency and effectiveness of R&D expenditures among companies in the same industry and country.

Royalty rates refer to the percentage amount applied to sales to give royalties attributable to IP. This is usually a key issue for businesses with significant intellectual properties subject to license agreements.