What are the three commonly used trading multiples
EV/Sales: Enterprise Value ÷ Sales (or Revenue)
EV/EBITDA: Enterprise Value ÷ EBITDA (Earnings before Interest, Taxes, Depreciation & Amortization)
Price/Earnings (or P/E): Market Value of Equity ÷ Net Income (alternatively, Stock Price ÷ Earnings Per Share, or EPS)
Why is it incorrect to use Market Value/EBITDA or Enterprise Value/Net Income?”
The answer lies in the fact that for any multiple, the denominator and numerator within that multiple must either include or exclude leverage. In other words, both the numerator and denominator must both relate to either all stakeholders or only shareholders. Otherwise, comparisons across companies will not be “apples-to-apples”—they will be difficult to compare because different companies utilize different amounts of leverage.
Last changeda month ago
