Wesley R. Gray
Drexel University – LeBow College of Business; Empiritrage, LLC; TurnkeyAnalyst.com
Jack Vogel
Drexel University
November 10, 2011
Abstract:
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
