medium · Investment Banking implied-share-price
When comparing two companies in the same industry, Company A has a P/E of 15x and Company B has a P/E of 20x.
Which of the following is the most likely reason EV/EBITDA would be a better metric for comparison?
- Company A simply happens to have fewer diluted shares outstanding than Company B.
- Company B has a meaningfully higher growth rate and much stronger future earnings potential.
- Company B is a considerably larger business by its reported annual revenue than Company A is.
- Company A has significantly higher leverage and more interest expense than Company B.
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