The Enterprise Multiple, EV/EBITDA is one valuation metric commonly seen in the financial world these days. I can definitely appreciate its merits (as I would cover later), however, upon deeper thinking it does raises many questions. In this article, I would be sharing on my thought process and I would love to hear the thoughts of other readers.

The Enterprise Multiple (EV/EBITDA)

When compared against the P/E multiple, EV/EBITDA would definitely be a much better metric to be used. The reason being that with the P/E ratio, it has a numerator that is forward looking and a denominator that is based on past performance.

Why EV? By using Enterprise Value, it allows us to compare companies that are using different capital structures. Imagine buying two similar assets but financed in different ways. One through a pure equity method and the other through debt financing. At the end of the year, ...

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