The Multiple Toolbox — Which One Where

The core set

P/E: profitable, stable earners. EV/EBITDA: capital-structure-neutral, good for levered or capex-heavy comparisons (EV includes debt — you buy the whole business). P/S: unprofitable growers (revenue is the only positive line) — but margins decide if 5× sales is cheap. P/B: banks and asset-heavy firms (where book value ≈ economic value); useless for software whose assets walked out the door.

EV/EBITDA caveats

EV/EBITDA ignores capex — for two "identical" EBITDA streams, the one needing constant reinvestment is worth far less. Pair it with FCF or EBITDA−capex. Also EV must be computed honestly (include leases, pensions, minority interest) or the comparison is apples-to-oranges.

The comparison discipline

Multiples only mean something against: (1) the company's own history, (2) direct peers with similar growth/quality/risk, (3) the implied expectations (reverse-engineered). A multiple in isolation is a number; in context it is an argument.

Sources

• EV/EBITDAInvestopedia
• Investment ValuationAswath Damodaran