Multiples and comparables

Multiples and comparables

1. 1. Why do analysts prefer EV/EBITDA over P/E when comparing firms with very different capital structures?

   EBITDA is always larger than earnings, making the multiple smallerEV/EBITDA is capital-structure-neutral; P/E is distorted by interest expense and the share of value owed to debtP/E is a deprecated metricEBITDA accounts for taxes correctly

2. 2. An early-stage biotech with negative earnings can still be valued via which multiple?

   Trailing P/EPrice-to-bookEV/SalesForward EPS

3. 3. A target firm has $80M of forecast EBITDA and $200M of net debt. Peer median EV/EBITDA = 12×. With 50M shares outstanding, what is the implied share price?

   $12.00$15.20$19.20$80.00

4. 4. Which of these are common ways multiples mislead?

   Cyclical firm at the peak of its cycle looks 'cheap' on P/ELumping fast-growers with slow-growers and comparing P/E without adjustingUsing transaction multiples (with control premium) to value a public-market stakeReporting the median multiple instead of the mean