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EV/EBITDA clarification

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    • Avatar of vincenttvincentt
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        • CFA Level 3
        20 Apr 2017 at 11:14 pm
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        EV consists of more than just market value of debt. It also includes things like MV of common stocks, MV of preferred stocks and any other debts so basically it covers equity and debt.

      • Avatar of vincenttvincentt
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          • CFA Level 3
          20 Apr 2017 at 11:19 pm
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          For example,
          Company A
          current price: $20
          book value (which is equity): $5 per share

          Company B
          current price: $20
          book value: $10 per share

          Company A would have a P/B ratio of 4x while company B would have a P/B ratio of 2x.

          That’s due to their differences in capital structure. So valuation multiples that doesn’t specifically use equity or debt values would be the best to evaluate companies that very different capital structure.

          Hope that make sense.

        • Avatar of lulu123lulu123
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            20 Apr 2017 at 11:16 pm
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            @vincentt
            yes I know but that’s exactly my point: if the structures are very different, then why would you want to use the EV ratio?…. or should I be thinking the exact opposite: since it has all that, its a GOOD comparison base?

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