In the context of the comparable multiples method, which ratio is most commonly used?

The price-earnings (P/E) ratio is widely recognized as the most commonly used metric in the comparable multiples method. This approach assesses a company's market value relative to its earnings, providing a clear lens through which investors can gauge its performance against peers within the same industry.

The P/E ratio is favored because it effectively reflects investor expectations about the company's future growth. By comparing the earnings generated by a company to its trading price, investors can identify whether a stock is overvalued or undervalued compared to its peers. This comparative analysis aids in making informed investment decisions and provides a straightforward measurement that is readily available and understood by market participants.

In contrast, other ratios such as the debt-to-equity ratio, asset turnover ratio, and return on investment ratio, while useful in their own contexts, do not specifically facilitate direct comparisons of company valuations based on earnings. The debt-to-equity ratio focuses on a company's financial leverage, asset turnover measures operational efficiency, and return on investment evaluates profitability relative to its cost. These metrics play important roles in comprehensive financial analysis, but they do not serve the same purpose as the P/E ratio in the context of stock valuation and comparison.