The Analyst’s Course · Valuation & DCF
Comps Done Right — Multiples and Their Abuses
The multiple menu and its fine print
P/E prices equity to shareholders after interest and tax — clean for profitable firms, meaningless for loss-makers, distorted by leverage. EV/EBITDA prices the whole enterprise to pre-interest, pre-tax, pre-D&A cash flow — capital-structure neutral, the workhorse for cross-border and leveraged comparisons, but blind to capex (a "cheap" 8× with capex at 15% of revenue is expensive). P/S ignores profitability entirely — its only honest use is on firms with no earnings yet, where it is a bet on future margins. The panel computes all three and benchmarks each against the peer median.
Peer selection is the model
A comps table is only as honest as its peer set. Selection bias is the original sin: choose growthier peers and every premium looks justified. The panel pulls peers by sector from the live universe — your job is to vet them: same business model, same stage, same geography. Amazon's "high" P/E in 2015 was a retail P/S on an AWS business inside; the fix was a better peer split, not a shrug.
Adjusted EBITDA and the abuse of adjustment
Every add-back moves the multiple. Some are legitimate (one-time restructuring); many are not (stock comp is a real, recurring cost — WeWork's "community-adjusted EBITDA" became the era's joke for a reason). Practitioner rule: rebuild adjusted numbers back to GAAP yourself, price the GAAP, and treat the gap between adjusted and GAAP as a risk measure. The panel deliberately reads filed statements only — company-adjusted metrics never enter its math.
EV = MktCap + Debt − Cash; multiple vs median ± premium
EV/EBITDA discipline — The panel flags the subject's premium/discount vs peer median — investigate any extreme before believing it.
The SPAC comps of 2021
The 2021 SPAC wave priced pre-revenue companies on "category peer" multiples — choosing the two most expensive comparable companies on earth, applying a 40% "discount for execution risk," and calling it conservative. Cohort-wide, the median de-SPAC fell ~60–70% by end-2022. The failure was never the multiple math; it was peer selection plus adjustment stacking. Every piece of that failure is visible in a discipline this lesson teaches: rebuild to GAAP, vet the peer set, price the median — not the story.
What you'll practise
A capital-intensive firm looks "cheap" on EV/EBITDA. The missing check?
3 graded checkpoints · certification exam at the end of the track
Sources
Damodaran (ERP data); Mauboussin, ATKM; McKinsey Valuation; IPO prospectuses (SEC S-1 filings)
Learn content is for education only — not individualized financial advice, a recommendation, or a solicitation to buy or sell any security. Options involve substantial risk. Examples are simplified and historical patterns never guarantee future results.