Intermediate · Lesson 2 of 9

Valuation ratios: P/E, PEG, P/B, P/S, EV/EBITDA

9 minute read · By Krishna Avadhani, Vestora Academy · Updated 18 October 2026

The price-to-earnings ratio (P/E) is the share price divided by earnings per share. A P/E of 15 means you pay $15 for each $1 of yearly profit. A high P/E means the market expects growth; a low P/E may mean cheapness or trouble.

The PEG ratio divides the P/E by the expected earnings growth rate (in %). A PEG near 1 has been used as a rough sign that the price is in line with growth; well above 2 suggests the growth is expensive. Price-to-book (P/B) compares the price with the accounting value of equity, useful for banks and insurers. Price-to-sales (P/S) helps when a company has no profit yet.

EV/EBITDA compares enterprise value (market value plus debt minus cash) with earnings before interest, tax, depreciation and amortisation. It allows fairer comparisons between companies with different debt levels. Always compare ratios with the company's own history and its sector, not across unrelated industries.

Formula

P/E = Price / EPS
PEG = (P/E) / EPS growth %
EV = Market cap + Debt - Cash

Example: Price $40, EPS $2.50: P/E 16. Growth 8%: PEG 2.0.

Key takeaways

P/E = price / EPS; PEG = P/E / growth %.
EV/EBITDA adjusts for debt, so it compares companies fairly.
Compare ratios within a sector and against history.

Check your understanding

1. A share has P/E 30 and expected EPS growth 15% a year. What is the PEG?

Show the answer

2.0. 30 / 15 = 2.0.

2. Which ratio is most useful for valuing a bank?

P/S
Price-to-book
EV/EBITDA
PEG only

Show the answer

Price-to-book. Banks' assets are mostly financial, so book value is meaningful.

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General education only, not financial advice. Examples are illustrations. Rules, tax settings and products change; check official sources.