Series 79 practice questioneasyEnterprise Value vs Equity Value
Which of the following is an equity value multiple rather than an enterprise value multiple?
- AEV/EBITDA
- BEV/Revenue
- CPrice/Earnings (P/E)✓ Correct answer
- DEV/EBIT
Explanation
Why C — Price/Earnings (P/E)
The Price/Earnings (P/E) ratio is an equity value multiple because the numerator (price per share or equity market capitalization) represents value to equity holders only, and the denominator (earnings per share or net income) is also an equity-level metric that is calculated after interest expense on debt. Enterprise value multiples like EV/EBITDA and EV/Revenue use enterprise value in the numerator, which represents value to all capital providers.
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