Telecommunications companies play a very crucial role in the economy by providing access to voice, text, video and other data through wireless and fixed-line channels. Because purchasing and maintaining telecom equipment and cables can be very expensive, certain telecom companies tend to have low earnings due to large depreciation or interest expenses. Also, telecommunication companies that are rapidly growing can have earnings lagging behind the revenues as they are aggressively investing in new technology. To analyze companies with low earnings, financial professionals use price metrics such as price-to-book ratio, enterprise value to sales and enterprise value to earnings before interest, taxes, depreciation and amortization.

Price-to-Book Ratio

P/B ratio is one of the most widely used price metrics that gives a gauge for how the market values a telecom company's book value. As long as the book value is positive, regardless of whether the company has positive or negative earnings, this metric is very useful to compare and price companies. For instance, in June 2015, T-Mobile US, a U.S. wireless voice and data provider, had very low earnings with a price-to-earnings ratio of 100, but its P/B ratio was 2.

Enterprise Value to Sales

EV/Sales ratio is the most popular ratio among analysts, especially when the company has low or negative earnings since it is quite rare for a telecom company not to have any revenues. This price metric tells an investor how much it costs him to buy a company's sales. For example, in June 2015, Globalstar, mobile voice and data communications provider, had negative earnings for the last 12 months, but its EV/Sales ratio was 33.

Enterprise Value to EBITDA

Another popular price metric is EV/EBITDA, especially for a company that has low or negative earnings due to large depreciation, tax or interest expenses. Like any other enterprise value ratio, EV/EBITDA takes into account debt in its value and is useful to compare companies located in different tax jurisdictions and with different debt burdens. For example, Vodafone, a leading British telecommunications company, has an EV/EBITDA ratio of 8.65.

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  1. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, ...
  2. Enterprise Multiple

    A ratio used to determine the value of a company. The enterprise ...
  3. EBITDA to sales ratio

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  4. Multiples Approach

    The multiples approach is a valuation theory based on the idea ...
  5. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ...
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