Learn P - B, P - S, and EV - EBITDA — Hinglish notes

2.5.3 · Stock-Market › Financial Ratios

Price-to-Book Ratio (P/B)

P/B Ratio ko First Principles se Derive Karna

P/B ki ZAROORAT kyun hai? Stock prices future expectations reflect karte hain, lekin balance sheets current asset backing dikhati hain. P/B humein batata hai: "Company ke ₹1 net assets ke liye main kitna pay kar raha hoon?"

Book value KYA hoti hai?

Accounting identity se shuru karo: Assets = Liabilities + Equity
Rearrange karo: Equity = Assets − Liabilities
Ye equity hi "book value" hai—jo shareholders theoretically own karte hain

P/B KAISE banate hain?

Market cap lo (market jo company ki worth kehti hai): $Market Cap = Share Price \times Shares Outstanding$
Balance sheet se book value lo: $BV = Total Assets - Total Liabilities$
Ratio nikalne ke liye divide karo:

$P/B = \frac{Market Cap}{Book Value} = \frac{P \times N}{A - L}$

Jahan $P$ = price per share, $N$ = shares outstanding, $A$ = total assets, $L$ = total liabilities.

Per-share version (practice mein zyada common):

$P/B = \frac{Price per Share}{Book Value}$

$Book Value per Share = \frac{Total Equity}{Shares Outstanding}$

Figure — Learn P - B, P - S, and EV - EBITDA

Worked example Worked Example 1: P/B Calculate Karna

Company: Industrial Bank Ltd
Market Price: ₹850 per share
Shares Outstanding: 10 crore
Total Assets: ₹12,000 crore
Total Liabilities: ₹3,500 crore

Step 1: Book Value of Equity Calculate Karo
Ye step kyun? Humein denominator chahiye—shareholders paper par kya own karte hain.
$BV = ₹12, 000 - ₹3, 500 = ₹8, 500 crore$ Step 2: Book Value per Share Calculate Karo
Ye step kyun? Price per share ke saath apples-to-apples compare karne ke liye.
$BVPS = \frac{₹8 , 500 crore}{10 crore shares} = ₹85 per share$

Step 3: P/B Ratio Calculate Karo
Ye step kyun? Ye humein book value par market premium batata hai.
$P/B = \frac{₹850}{₹85} = 10$

Interpretation: Investors ₹1 book value ke liye ₹10 pay kar rahe hain. Ye HIGH hai—market strong future ROE aur growth expect karti hai. Banks/financials ke liye typical 1-3x hota hai. P/B of 10 ya toh exceptional franchise value suggest karta hai ya potential overvaluation.

P/B Kab Use Karein

Asset-heavy businesses: Banks, real estate, manufacturing—jahan balance sheet assets meaningful hain
Distressed companies: Negative earnings P/E ko useless bana dete hain, lekin P/B liquidation value floor dikhata hai
Value investing screens: Graham-style investors P/B < 1 dhundte hain (market price book value se neeche)

P/B kab misleading hota hai:

Tech/service companies jinke intangible assets (brand, software, patents) balance sheet par nahi hote
Companies jinke assets ki valuations purani hain (decades pehle historical cost par kharidi gayi real estate)

Price-to-Sales Ratio (P/S)

P/S ko First Principles se Derive Karna

P/S ki ZAROORAT kyun hai? Revenue "top line" hai—earnings ke comparison mein manipulate karna bahut mushkil hai (jisme subjective expense recognition, depreciation, tax strategies involve hoti hain). Unprofitable growth companies ke liye, P/S sabse reliable valuation metric hai.

P/S KYA batata hai?

Company generate karne wale ₹1 revenue ke liye main kitna pay kar raha hoon?
Kam P/S = sales generation capability ke relative sasta

Ise KAISE construct karte hain?

Market cap lo: $MC = P \times N$
Income statement se revenue lo: $R$ (typically annual ya TTM—trailing twelve months)
Divide karo:

$P/S = \frac{P \times N}{R}$

Per-share version:

$Sales per Share = \frac{Total Revenue}{Shares Outstanding}$

$P/S = \frac{Price per Share}{Sales per Share}$

Worked example Worked Example 2: P/S Calculate Karna

Company: QuickCommerce Startup
Market Price: ₹1,200 per share
Shares Outstanding: 5 crore
Annual Revenue: ₹3,000 crore
Net Profit: −₹500 crore (loss-making)

Step 1: Market Cap Calculate Karo
Ye step kyun? Humein numerator chahiye—sabhi shares ki total value.
$MC = ₹1, 200 \times 5 crore = ₹6, 000 crore$ Step 2: Revenue Directly Lo
Ye step kyun? Revenue hamara denominator hai—operational scale.
$R = ₹3, 000 crore$ Step 3: P/S Calculate Karo
Ye step kyun? Sales par valuation multiple dikhata hai.
$P/S = \frac{₹6 , 000}{₹3 , 000} = 2.0$

Interpretation: Market is company ko 2× revenue par value karti hai. Comparison ke liye:

Mature retailers: 0.3-0.8×
SaaS companies: 5-15×
High-growth e-commerce: 14× Ek loss-making commerce startup ke liye P/S of 2.0 reasonable hai AGAR growth strong hai aur profitability ka path clear hai.

P/S Kab Use Karein

Early-stage/growth companies: Abhi profitable nahi, lekin revenue fast scale kar rahe hain
Cyclical industries: Downturns mein earnings collapse ho jaati hain lekin revenue positive rehti hai
Cross-industry comparisons: Different capital structures/tax situations wali companies compare karne mein help karta hai

P/S kab misleading hota hai:

Profitability account nahi karta—₹100 crore revenue aur ₹50 crore costs wali company ₹95 crore costs wali company se bahut alag hai
Kam margin wale businesses ka P/S naturally lower hota hai (grocery retail ~0.2×) high-margin ke comparison mein (software ~10×)

Enterprise Value-to-EBITDA Ratio (EV/EBITDA)

EV/EBITDA ko First Principles se Derive Karna

EV/EBITDA ki ZAROORAT kyun hai? P/E aur P/B sirf equity value dekhte hain, lekin companies dono equity aur debt se finance hoti hain. Agar aap koi company acquire kar rahe ho, toh aap equity ke liye pay karte ho AUR debt assume karte ho (minus jo cash aapko milti hai). EV/EBITDA sach muchi acquisition multiple reflect karta hai aur capital structure differences ko neutralize karta hai.

Enterprise Value KYA hoti hai?

Mortgage ke saath ghar khareedne ke baare mein socho:

Ghar ki price (market cap) = ₹1 crore
Mortgage debt = ₹40 lakh
Seller ghar ke andar ₹10 lakh cash dega

Tumhara actual cost = ₹1 crore (equity) + ₹40 lakh (debt jo tum assume karte ho) − ₹10 lakh (cash jo tumhe milti hai) = ₹1.3 crore

$EV = Market Cap + Total Debt - Cash$

EBITDA KYA hai?

EBITDA ye cheezein strip out karta hai:

Interest: Debt levels par depend karta hai (financing choice)
Taxes: Jurisdiction/structure ke hisaab se vary karta hai
Depreciation & Amortization: Non-cash accounting charges

Kya bachta hai? Core business se operating cash generation.

Net Income se shuru karke backward kaam karte hue:

$EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization$

Ya Operating Income se:

$EBITDA = Operating Income (EBIT) + Depreciation + Amortization$

YE structure kyun hai? EV (price) EBITDA (cash flow jo sabhi capital providers—equity aur debt dono—ke liye available hai) se match karta hai. P/E price ko sirf equity ke liye available earnings se match karta hai.

Worked example Worked Example 3: EV/EBITDA Calculate Karna

Company: Manufacturing Corp
Market Cap: ₹5,000 crore
Total Debt: ₹2,000 crore
Cash: ₹500 crore
EBITDA (annual): ₹800 crore

Step 1: Enterprise Value Calculate Karo
Ye step kyun? Humein debt including "acquisition price" chahiye.
$EV = ₹5, 000 + ₹2, 000 - ₹500 = ₹6, 500 crore$

Step 2: EBITDA Lo
Ye step kyun? Ye hamara operational cash flow metric hai.
$EBITDA = ₹800 crore$

Step 3: EV/EBITDA Calculate Karo
Ye step kyun? Dikhata hai kitne saal ki EBITDA lagti hai enterprise value "pay off" karne mein.
$EV/EBITDA = \frac{₹6 , 500}{₹800} = 8.125$

Interpretation: Current EBITDA par, acquisition cost pay off karne mein 8.1 saal ki operational cash lagegi. Typical ranges:

Mature industrials: 6-10×
High-growth tech: 15-30×
Distressed companies: 3-6×

EV/EBITDA Kab Use Karein

Capital-intensive industries: Telecom, infrastructure, energy—jahan D&A bahut bada hota hai
Different debt levels wali companies compare karna: Level playing field banata hai
M&A analysis: Ye WO metric hai jo acquirers use karte hain (unhe total cost ki parwah hai, sirf equity ki nahi)

EV/EBITDA kab misleading hota hai:

EBITDA capex needs ignore karta hai—₹100 crore annual maintenance capex require karne wali company ₹10 crore wali company se bahut alag hai
Tech companies jinmein massive stock-based compensation hai (real cost, lekin EBITDA mein nahi)

Common mistake EV/EBITDA ka Common Pitfall: "EBITDA = Free Cash Flow"

Ye sahi kyun lagta hai: EBITDA cash generation hai, right?
Ye galat kyun hai: EBITDA teen critical cash outflows ignore karta hai:

Capex: Equipment replace/upgrade karna (manufacturing, telecom mein bahut bada ho sakta hai)
Working capital changes: Growth ke liye inventory/receivables investment zaroori hai
Taxes: Phir bhi pay karne padte hain! Fix: Hamesha Free Cash Flow (FCF) check karo = EBITDA − Capex − Tax −ΔWorking Capital. Capital-intensive companies ke liye, FCF EBITDA se 50% kam ho sakta hai. Isse bhi behtar, accurate valuation ke liye EV/FCF use karo. Example: ₹100 crore EBITDA lekin ₹80 crore capex wali company ke paas sirf ₹20 crore actual free cash hai—8× ka EV/EBITDA actually EV/FCF of 40× hai!

Teeno Ratios Ki Comparison

Ratio	Kya Measure Karta Hai	Best For	Limitation
P/B	Market value vs net assets	Banks, asset-heavy, distressed	Intangibles ignore karta hai, book values stale ho sakti hain
P/S	Market value vs revenue	Unprofitable growth, cyclicals	Profitability/margins ignore karta hai
EV/EBITDA	Total value vs operating cash	Capital-intensive, M&A, cross-capital structure	Capex, working capital, taxes ignore karta hai

80/20 Rule: Zyaatar valuations ke liye, inhe combine karo:

P/E profitable, stable companies ke liye
P/S growth/unprofitable companies ke liye
EV/EBITDA capital-intensive ya high-debt companies ke liye
P/B financials ya deep value plays ke liye

Recall Feynman Technique: Ek 12-Saal Ke Bacche Ko Explain Karo

Socho tum ek toy store khareedna chahte ho. Price fair hai ya nahi, ye pata karne ke teen tarike hain: P/B (Price-to-Book): Store mein saare toys, shelves, aur cash dekho. Unhe add karo, store jo bhi owe karta hai (jaise rent debt) subtract karo. Ye "book value" hai. Agar store ₹100 mein aata hai lekin andar ki cheezein ₹50 worth hain, tum 2× book value pay kar rahe ho (P/B = 2). Kam number = sasta.

P/S (Price-to-Sales): Profit bhool jao—sirf dekho ki har mahine toys bechne se kitna paisa aata hai. Agar store ₹10 ki sales karta hai aur khareedne mein ₹20 lagte hain, tum 2× sales pay kar rahe ho (P/S = 2). Ye tab help karta hai jab store abhi profit nahi bana raha lekin bahut busy hai.

EV/EBITDA: Ab socho store par loan hai. Tumhara REAL cost store price PLUS wo loan pay off karna hai, MINUS register mein jo bhi cash rakhhi hai (wo tumhe milti hai). Ye EV hai. EBITDA wo paisa hai jo store loan interest ya taxes pay karne se pehle banata hai—pure toy-selling power. Agar EV ₹80 hai aur EBITDA ₹10, toh ratio 8 hai. Matlab total cost pay karne ke liye 8 saal ki toy-selling lagegi.

Teeno alag-alag cheezein batate hain. Book value dikhata hai physically kya hai. Sales dikhati hai store kitna busy hai. EV/EBITDA true takeover cost versus cash-making ability dikhata hai.

Connections

2.5.01-Understanding-PE-Ratio – P/E foundation hai; P/B, P/S, EV/EBITDA alternatives/complements hain
2.5.02-Forward-vs-Trailing-P-E – Wahi forward/trailing concept sabhi multiples par apply hota hai
2.4.01-Income-Statement-Basics – Revenue, EBITDA, net income income statement se flow karte hain
2.3.02-Balance-Sheet-Deep-Dive – Book value balance sheet equity se aati hai
3.2.01-DCF-Valuation-Model – Ye multiples shortcuts hain; DCF fundamental approach hai
4.1.03-Value-vs-Growth-Investing – Value investors low P/B pasand karte hain; growth investors high P/S tolerate karte hain
2.6.01-Return-on-Equity-ROE – High ROE companies high P/B justify karti hain (market premium pay karta hai)
2.6.03-Free-Cash-Flow – EBITDA FCF nahi hai; difference samjho

#flashcards/stock-market

P/B ratio kya compare karta hai? :: Market capitalization ko book value of equity (balance sheet par net assets) se

Book value of equity kya hoti hai?

Total Assets minus Total Liabilities; jo shareholders paper par own karte hain

Per-share terms mein P/B ratio formula :: Price per Share divided by Book Value per Share

P/B sabse useful kab hota hai?

Asset-heavy businesses (banks, real estate), negative earnings wali distressed companies, value investing screens

P/B < 1 hamesha bargain kyun nahi hota?

Book value overstated ho sakti hai (obsolete assets, bad loans) ya stale ho sakti hai (historical cost); assets ki quality matter karti hai

P/S ratio kya compare karta hai?

Market capitalization ko total revenue se

Unprofitable companies ke liye P/S useful kyun hai?

Revenue manipulate karna mushkil hai aur earnings negative hone par bhi positive rehti hai; top-line scale ke relative valuation dikhata hai

P/S ratio formula :: Market Cap / Total Revenue, ya Price per Share / Sales per Share

P/S ki main limitation kya hai?

Profitability ya margins account nahi karta; kam margin wali company ka P/S kam ho sakta hai lekin earnings basis par mehengi ho sakti hai

P/S ko implied P/E mein kaise convert karte hain?

P/S ko net profit margin se divide karo: P/E = P/S / Net Margin

Enterprise Value (EV) kya hoti hai?

Market Cap + Total Debt − Cash; kisi company ka true acquisition cost

EV mein se cash kyun subtract karte hain?

Kyunki acquirer wo cash receive karta hai; ye net cost reduce karta hai

EBITDA kya hai? :: Earnings Before Interest, Taxes, Depreciation, Amortization; financing aur accounting choices se pehle operating cash generation

EV/EBITDA formula

Enterprise Value / EBITDA

Different debt levels wali companies compare karne ke liye EV/EBITDA, P/E se behtar kyun hai?

EV mein debt include hota hai (capital structure neutralize karta hai); EBITDA pre-interest hai (financing mix ignore karta hai); true operational valuation dikhata hai

EV/EBITDA kab misleading hota hai?

Jab capex requirements significantly alag hoon (EBITDA capex, taxes, working capital ignore karta hai); high stock-based comp wali tech companies

EBITDA aur Free Cash Flow mein kya fark hai?

FCF = EBITDA − Capex − Taxes − Δ Working Capital; FCF sabhi operational needs ke baad available actual cash hai

Banks ke liye kaun sa ratio best hai?

P/B, kyunki banks ke main assets financial hain (loans, securities) jo balance sheet par reflect hote hain

Unprofitable growth companies ke liye kaun sa ratio best hai?

P/S, kyunki earnings negative hone par revenue sabse reliable metric hai

M&A analysis ke liye kaun sa ratio best hai?

EV/EBITDA, kyunki ye total acquisition cost aur sabhi capital providers ke liye operational cash generation reflect karta hai

P/B of 10 kya suggest karta hai?

Market bahut high future ROE, strong intangible value, ya potential overvaluation expect karti hai; exceptional franchises ke liye typical