when the ev 2p multiple is high it means the company is trading at a premium for a given amount of oil in the ground conversely a low value would suggest a potentially undervalued company 
the ev 2p ratio is comparable to other more common ratios used in valuation such as enterprise value or p e ratios these ratios express a company s value as a multiple of earnings or assets it s important to compare a company s ev 2p ratio with those of similar companies and with the historical values of the ratio using historical and industry comparisons can help investors determine if a company is undervalued overvalued or fairly valued example of the ev 2p ratiolet us assume that an oil company has an enterprise value of 2 billion and proven and probable reserves of 100 million barrels ev 2p 2 billion 100 million 20 begin aligned text ev 2p frac 2 text billion 100 text million 20 end aligned ev 2p 100 million 2 billion 20 the ev 2p ratio 20 or the company has a 20 multiple in other words the company is valued at 20 times its enterprise value to 2p reserves whether the 20 multiple is high low or fairly valued depends on other oil companies within the same industry the difference between the ev 2p ratio and ev ebitdaenterprise value compared to earnings before interest tax depreciation and amortization is also referred to as the enterprise multiple the ev ebitda ratio compares the oil and gas business free of debt to ebitda this is an important metric as oil and gas firms typically have a great deal of debt and the ev includes the cost of paying it off by stripping out debt analysts can see how well the company is valued the ev 2p ratio on the other hand also uses enterprise value in its formula but instead of using ebitda the ratio includes proven and probable 2p reserves the ev 2p ratio is important when judging the potential or possible growth of an oil company since proven and probable 2p reserves are likely to be recovered limitations of the ev 2p ratioas mentioned earlier the ev 2p ratio includes total debt in its calculation because enterprise value also includes total debt oil companies typically carry significant amounts of debt on their balance sheets which is normal for the industry debt is used to top finance oil rigs equipment and the cost of exploration as a result the extra debt would put the ev of oil companies at a much higher valuation than most other industries that carry less debt investors should be aware of the unique capital structures of oil and gas companies when using any valuation metric including the ev 2p ratio 