Is this ratio the Holy Grail for investors?

Ratios to work out a stock's true value are invaluable to investors. But is the EV/EBITDA ratio better than all the rest? And can it make you rich? Tim Bennett reports.

The promise of a shortcut to riches is always attractive. No sane investor wants to grind through every page of a set of financial statements to hunt down a bargain share if a single ratio will do the job instead.

Enter James O'Shaughnessy, an American money manager who has just released an updated version of his 1996 book (described as "something of a bible" by John Reese on Seekingalpha.com), What Works On Wall Street. He claims that one number, the intimidating sounding enterprise value (EV) to earnings before interest, tax, depreciation and amortisation (EBITDA), works much better than the rest. So has he uncovered investing's Holy Grail?

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.