EV to sales versus earnings multiples When we calculate any EV multiple, whether it's EV to sales EV to ebit or EV to ebitda, the numerator is always the same EV. This means that there is a direct relationship between these EV multiples. Let's use an example of a company that has an EV of 40 billion dollars and that has forecast sales of 10 billion dollars ebitdar of four billion and ebit of two billion. The EV to sales multiple is four times easy to ebitda is 10 times and easy to ebit is 20 times. When we do this, we need to remember that we have the same numerator in these multiples. And therefore these multiples are all linked by the company's margins easy to sales divided by EV to ebitda gives the ebitda margin of 40% whilst the EV to sales divided by EB to ebit gives the ebit margin of 20% whilst the maths isn't particularly complex here. The ramifications of this are extremely important. This means that if a company has lower margins than its peers and it's trading in line with peers on an EV to ebit and EV to ebitda basis. This will automatically be reflected in the company having a low EV to sales multiple compared with peers. This also means that if we're placing Reliance on EV to sales multiples and therefore we expect a company and its peers to have similar EV to sales multiples. We're implying that the companies have similar margins or are expected to have similar margins in the near future.