Lately, shares in Rolls-Royce (LSE: RR) have been hovering around the £4 mark. For investors who bought them for less than a tenth of that price in 2020, that marks an incredible increase in value. The aerospace engineer was the best-performing share in the FTSE 100 index last year. So far this year, Rolls-Royce shares are up by a third again. But is Rolls-Royce really worth 10 times what it was four years ago? Or are the shares now overvalued? There are different ways to value companies. For a mature business like Rolls-Royce, a common one is the price-to-earnings (P/E) ratio. In isolation, a P/E ratio does not tell the full story. It is also important to consider such things as a firm’s balance sheet, for example. Rolls has been cutting its debt, but still had £2bn of net debt at the end of last year. Still, a P/E ratio can be helpful. The reason many investors like it as a valuation metric is its simplicity. It basically states how many years it would take for a purchaser to pay down the cost of purchasing a company outright, by using its earnings at their current level. In practice, things can...