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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More from Enterprise & Equity Value
- What's the difference between enterprise value and equity value?
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- 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?
- Which valuation multiples pair with enterprise value vs. equity value, and why?
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