Certified Management Accountant 2026 – 400 Free Practice Questions to Pass the Exam

The Price/EBITDA Ratio is a financial metric that measures the market price per share in relation to EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) per share. This ratio provides insight into how much investors are willing to pay for a company’s earnings before certain expenses are deducted.

This ratio is particularly useful for comparing companies within the same industry because it helps assess their relative value. A higher Price/EBITDA ratio may indicate that a company is overvalued, while a lower ratio could suggest undervaluation. Hence, this metric is often leveraged by investors to evaluate investment opportunities, making choice B the correct representation of what this ratio signifies.

In contrast, the other options do not accurately depict the function of the Price/EBITDA Ratio. For example, the first option discusses return on investment for shareholders, which is a broader concept not limited to the Price/EBITDA ratio. The third option refers to capital efficiency, which is typically measured using different ratios such as return on equity. Lastly, the fourth option describes a solvency ratio (total assets to total liabilities) that assesses a firm's liabilities rather than its market valuation in relation to earnings.