True P/E

“EV/EBITDA” is available from Yahoo!Finance and other sources. The true EY is “1/Ture PE”. I call it “True” for a better term as it represents the financial situation of the company better. This could be the most important metric for many.

Earnings can be manipulated. For example, the company management can lower the P/E ratio by buying back its stocks. In this case the earnings per share is boosted but in reality there is no change in the company’s financial fundamentals. The true P/E takes consideration of the reduced cash. EBITBA stands for “Earnings Before Interest, Taxes, Depreciation, and Amortization”.

Be careful when EV or “EBITDA” is negative. Most likely you should avoid the stocks with negative EV.