Enterprise & Equity Value
Why use an enterprise value multiple (like EV/EBITDA) instead of an equity multiple (like P/E) when comparing companies?
Model answer
EV/EBITDA is capital-structure neutral - both numerator (EV) and denominator (EBITDA, which is pre-interest) are unaffected by how the firm is financed, so you can compare a heavily levered company…
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