Now that we are entering October, we Upper Midwesterners have to look forward to a dreary period of time when days are darker, our skin starts to shiver and our hearts beat faster to move our chilled blood. I am speaking, of course, of Earnings Season.

After listening to countless conference calls, several detailed phone discussions and reading/writing many reports we need to figure out what we think these securities are worth. But what method does one use for valuation? Price to Earnings is the most popular and can be used across sectors, but can be managed via accounting methods and is not useful for early stage/pre-earnings companies.  Price to Sales combats some of those problems and can be the least susceptible to accounting noise, but can overlook poor cost oversight. Enterprise Value to EBITDA works well because it can reflect the cash generation characteristics of a company and is comparable across capital structures but can be difficult to utilize across industries. Price to Book can be the go to valuation for pre-earnings companies but can be difficult to use due to differences in accounting assumptions. We have other valuation tools as well, discounted cash flow, PEG ratios and many others.

Naturally, we use each of these valuation methods on a daily basis and some may work better than others for certain sectors and certain situations—and we all need to use a combination to get a more qualified valuation picture. But usually we have our favorites and one that we typically put more weight on than others—especially during the screening process. Do you have a valuation method that you go to more often than others? What do you think?