easy · Principles of Finance cost-of-capital-structure
Why do practitioners typically prefer Enterprise Value (EV) multiples like EV/EBITDA over Equity multiples like P/E when comparing companies with significantly different debt levels?
- EV/EBITDA is independent of the firm's capital structure.
- EV ignores the value of cash on the balance sheet.
- P/E multiples are always higher than EV/EBITDA multiples.
- EBITDA is a more accurate measure of net income.
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