Series 79 practice questionmediumComparable Company Analysis
In comparable company analysis, which is the main difference between using enterprise value/EBITDA and price/earnings (P/E) multiples?
- AP/E is unaffected by capital structure
- BEV/EBITDA is capital structure-neutral; P/E is not✓ Correct answer
- CEV/EBITDA includes interest expense
- DP/E adjusts for minority interest
Explanation
Why B — EV/EBITDA is capital structure-neutral; P/E is not
EV/EBITDA is capital structure-neutral, making it appropriate for comparing companies with different financing. P/E is equity-centric and distorted by leverage, so misapplying it can mislead valuations.
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