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By comparison, at the same 12 times ratio of enterprise value to earnings before interest, tax, depreciation and amortization at which Marriott trades, Hyatt — with no net debt — would be worth closer to $6 billion.
Since 2008 News Corp's ratio of enterprise value to earnings, a measure used to rate media groups, has risen above that of its main rivals (see chart).For years investors have wanted News Corp to spin off its newspaper assets.
The reason tech companies sometimes have such high ratios of value to earnings is that investors have learned very well the lesson of Microsoft and Intel: that technology markets tend to be winner-takes-all, and a company that gets an early advantage in a new technology may well be able to translate that advantage into a sustained, lucrative monopoly.
In addition to PE, look at other valuation metrics, such as price-to-book (the price people are willing to pay for the value of the company's assets) and enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA).
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Based on an estimated 2009 earnings before interest, tax, depreciation and amortization of just over $6 billion and an industry average enterprise value-to-earnings (before interest, taxes, etc).
On an enterprise value to pretax earnings basis, says Chan, Esprit is valued at about 8 times forward earnings; on the same basis its American peer Gap trades at 18 and the global retailer Hennes & Mauritz at 28.
But the column also warns the shares now look a little overpriced: At 440p, the shares trade on an enterprise value to 2012 earnings after transformation costs of almost eight.
It values the manufacturer at $7.9 billion by using Fiat's multiple of enterprise value to trailing earnings before interest, taxes, depreciation and amortization, a calculation stipulated in the 2009 agreement with the Treasury.
When picking stocks Auerbach looks at ratios of price-to-book value and to earnings, rates of growth, rates of inflation and, most important, the purchasing power of the currency.
American shares may be richly valued relative to earnings, but they are less unhinged than in earlier booms.
The forward price-to-earnings ratio, a measure that compares a company's stock-market value to its forecasted earnings, is a paltry 3.3, which makes it look like quite a bargain.
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