easy · Principles of Finance cost-of-capital-structure
Why is EV/EBITDA often preferred over the P/E ratio when comparing companies with different capital structures?
- EBITDA fully accounts for the firm's ongoing capital expenditure requirements each period.
- EBITDA is independent of the firm's interest expense and tax jurisdiction.
- P/E ratios are unaffected by changes in a firm's leverage or debt levels.
- Enterprise Value (EV) reflects only the market value of the firm's equity claims.
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