Analyzing Valuation Measures: A

The Earl S. Mack School of Law at Drexel Unive...

Performance Horse-Race Over the Past 40 Years


Wesley R. Gray

Drexel University – LeBow College of Business; Empiritrage, LLC;

Jack Vogel

Drexel University

November 10, 2011

We compare the investment performance of portfolios sorted on different valuation measures. EBITDA/TEV has historically been the best performing metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics. 

Number of Pages in PDF File: 18

Keywords: enterprise multiple, price to earnings, price to book, free cash flow, gross profits, valuation metrics

JEL Classifications: G10, G14

Working Paper Series

Date posted: December 13, 2011 ; Last revised: December 14, 2011

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