Which valuation multiples pair with enterprise value vs. equity value, and why?
Model answer
EV pairs with metrics available to all capital providers and before financing: EV/EBITDA, EV/EBIT, EV/Revenue. Equity value pairs with after-debt, post-tax metrics that belong to shareholders: P/E (price/EPS) and price/book. You must match the numerator's claimants to the denominator's.
⚠ Common wrong answer: "EV/net income works too — EV is the most complete measure of value, and net income is the bottom line." Why it fails: Net income is AFTER interest, so it belongs only to equity holders; pairing it with a firm-level numerator mixes claimants, and two identical businesses with different leverage would print different multiples.
This is one of the 20 free cards. Sign up free for 10 reps a day from the full bank.
More from Enterprise & Equity Value
- What's the difference between enterprise value and equity value?
- Why do you subtract cash when going from equity value to enterprise value?
- Why is enterprise value capital-structure neutral but equity value is not?
- A company issues $100 of new debt and holds the cash on its balance sheet. What happens to EV and equity value?
- How do you calculate fully diluted shares?
- In one sentence each, define enterprise value and equity value.
Try the real thing
1 / 3What makes an acquisition accretive or dilutive to EPS?
Superday coming up? Take the cheat sheet.
The technicals and stories to have cold before you walk in — free, one email, no mailing list.
Free tier: 20 cards + 10 daily reps + ALL drills — no credit card required.